# Dillard'S, Inc.: Form 10-K for the period ended Feb 2, 2013

- Company: [Dillard'S, Inc.](/companies/dds.md) (CIK 28917)
- Form: 10-K
- Filed: 2013-03-28
- Accepted by EDGAR: Mar 28, 2013, 16:53 ET
- Period: 2013-02-02
- Accession: 0001047469-13-003588
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/28917/000104746913003588/a2212208z10-k.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/28917/000104746913003588/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2013-02-02.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2012-10-28 to 2013-02-02 | $2.11bn | us-gaap:SalesRevenueNet |
| Revenue | 12 months, 2012-01-29 to 2013-02-02 | $6.75bn | us-gaap:Revenues |
| Cost of revenue | 12 months, 2012-01-29 to 2013-02-02 | $4.25bn | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2012-10-28 to 2013-02-02 | $723.5m | us-gaap:GrossProfit |
| Gross profit | 12 months, 2012-01-29 to 2013-02-02 | $2.35bn | us-gaap:GrossProfit |
| Income tax | 12 months, 2012-01-29 to 2013-02-02 | $145.1m | us-gaap:IncomeTaxExpenseBenefit |
| Diluted EPS | 3 months, 2012-10-28 to 2013-02-02 | $3.36 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 12 months, 2012-01-29 to 2013-02-02 | $6.87 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 12 months, 2012-01-29 to 2013-02-02 | $6.98 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 12 months, 2012-01-29 to 2013-02-02 | 48,911,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 12 months, 2012-01-29 to 2013-02-02 | $522.7m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 12 months, 2012-01-29 to 2013-02-02 | $136.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 12 months, 2012-01-29 to 2013-02-02 | $252.3m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 12 months, 2012-01-29 to 2013-02-02 | $185.5m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2013-02-02 | $124.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2013-02-02 | $1.49bn | us-gaap:AssetsCurrent |
| Total assets | at 2013-02-02 | $4.05bn | us-gaap:Assets |
| Current liabilities | at 2013-02-02 | $767.1m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2013-02-02 | $614.8m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2013-02-02 | $1.97bn | us-gaap:StockholdersEquity |

## Business

As filed, 9,208 characters.

Dillard's, Inc. ("Dillard's", the "Company", "we", "us", "our" or "Registrant") ranks among the nation's largest fashion apparel, cosmetics and home furnishing retailers. The Company, originally founded in 1938 by William T. Dillard, was incorporated in Delaware in 1964. As of February 2, 2013, we operated 302 Dillard's stores, including 18 clearance centers, and an Internet store offering a wide selection of merchandise including fashion apparel for women, men and children, accessories, cosmetics, home furnishings and other consumer goods. The Company also operates a general contracting construction company, CDI Contractors, LLC and CDI Contractors, Inc. ("CDI"), whose business includes constructing and remodeling stores for the Company.

The following table summarizes the percentage of net sales by segment and major product line:

| Retail operations segment: | Percentage of Net Sales Fiscal 2012 | Fiscal 2011 | Fiscal 2010 |
| --- | ---: | ---: | ---: |
| Cosmetics | 15% | 15% | 15% |
| Ladies' apparel | 22 | 23 | 23 |
| Ladies' accessories and lingerie | 15 | 14 | 14 |
| Juniors' and children's apparel | 8 | 8 | 8 |
| Men's apparel and accessories | 17 | 17 | 17 |
| Shoes | 16 | 16 | 15 |
| Home and furniture | 5 | 6 | 6 |
|  | 98 | 99 | 98 |
| Construction segment | 2 | 1 | 2 |
| Total | 100% | 100% | 100% |

Additional information regarding our business, results of operations and financial condition, including information pertaining to our reporting segments, can be found in Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 hereof and in Note 2 of "Notes to Consolidated Financial Statements" in Item 8 hereof.

We operate retail department stores in 29 states, primarily in the southwest, southeast and midwest regions of the United States. Most of our stores are located in suburban shopping malls and open-air centers. Customers may also purchase our merchandise on-line at our website, www.dillards.com, which features on-line gift registries and a variety of other services.

Our retail merchandise business is conducted under highly competitive conditions. Although we are a large regional department store, we have numerous competitors at the national and local level that compete with our individual stores, including specialty, off-price, discount and Internet retailers. Competition is characterized by many factors including location, reputation, merchandise assortment, advertising, price, quality, operating efficiency, service and credit availability. We believe that our stores are in a strong competitive position with regard to each of these factors. Other retailers may compete for customers on some or all of these factors, or on other factors, and may be perceived by some potential customers as being better aligned with their particular preferences.

Our merchandise selections include, but are not limited to, Dillard's lines of exclusive brand merchandise such as Antonio Melani, Gianni Bini, Roundtree & Yorke and Daniel Cremieux. Dillard's exclusive brands/private label merchandise program provides benefits for Dillard's and our customers. Our customers receive fashionable, higher quality product often at a savings compared to national brands. Dillard's private label merchandise program allows us to ensure Dillard's high standards are achieved, while minimizing costs and differentiating our merchandise offerings from other retailers.

We have made a significant investment in our trademark and license portfolio, in terms of design function, advertising, quality control and quick response to market trends in a quality manufacturing environment. Dillard's trademark registrations are maintained for as long as Dillard's holds the exclusive right to use the trademarks on the listed products.

Our merchandising, sales promotion and store operating support functions are conducted primarily at our corporate headquarters. Our back office sales support functions, such as accounting, product development, store planning and information technology, are also centralized.

We have developed a knowledge of each of our trade areas and customer bases for our stores. This knowledge is enhanced through regular store visits by senior management and merchandising personnel and through the use of on-line merchandise information and is supported by our regional merchandising offices. We will continue to use existing technology and research to edit merchandise assortments by store to meet the specific preference, taste and size requirements of each local operating area.

Certain departments in our stores are licensed to independent companies in order to provide high quality service and merchandise where specialization, focus and expertise are critical. The licensed departments vary by store to complement our own merchandising departments. The principal licensed department is an upscale women's apparel vendor in certain stores. The terms of the license agreements typically range between three and five years with one year renewals and require the licensee to pay for fixtures and to provide their own employees. We regularly evaluate the performance of the licensed departments and require compliance with established customer service guidelines.

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. GE establishes and owns proprietary card accounts for our customers, retains the benefits and risks associated with the ownership of the accounts, provides key customer service functions, including new account openings, transaction authorization, billing adjustments and customer inquiries, receives the finance charge income and incurs the bad debts associated with those accounts. Pursuant to the Alliance, we receive on-going cash compensation from GE based upon the portfolio's earnings. The compensation earned on the portfolio is determined monthly and has no recourse provisions. Furthermore, pursuant to this agreement, we have no continuing involvement other than to honor the proprietary cards in our stores. Although not obligated to a specific level of marketing commitment, we participate in the marketing of the proprietary cards and accept payments on the proprietary cards in our stores as a convenience to customers who prefer to pay in person rather than by paying online or mailing their payments to GE.

We seek to expand the number and use of the proprietary cards by, among other things, providing incentives to sales associates to open new credit accounts, which generally can be opened while a customer is visiting one of our stores. Customers who open accounts are rewarded with discounts on future purchases. Proprietary card customers are sometimes offered private shopping nights, direct mail catalogs, special discounts and advance notice of sale events. GE has created various loyalty programs that reward customers for frequency and volume of proprietary card usage.

Our earnings depend to a significant extent on the results of operations for the last quarter of our fiscal year. Due to holiday buying patterns, sales for that period average approximately one-third of annual sales.

As of February 2, 2013, we employed approximately 38,000 full-time and part-time associates, of which approximately 27% were part-time. The number of associates varies during the year, especially during peak seasonal selling periods.

We purchase merchandise from many sources and do not believe that we are dependent on any one supplier. We have no long-term purchase commitments or arrangements with any of our suppliers and consider our relationships to be strong and mutually beneficial.

Our fiscal year ends on the Saturday nearest January 31 of each year. Fiscal year 2012 ended on February 2, 2013 and included 53 weeks, and fiscal years 2011 and 2010 ended on January 28, 2012 and January 29, 2011, respectively, and each included 52 weeks.

The information contained on our website is not incorporated by reference into this Form 10-K and should not be considered to be a part of this Form 10-K. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, statements of changes in beneficial ownership of securities on Form 4 and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge (as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC) on the Dillard's, Inc. website: www.dillards.com.

We have adopted a Code of Conduct and Corporate Governance Guidelines, as required by the listing standards of the New York Stock Exchange and the rules of the SEC. We have posted on our website our Code of Conduct, Corporate Governance Guidelines, Social Accountability Policy, our most recent Social Accountability Report and committee charters for the Audit Committee of the Board of Directors and the Stock Option and Executive Compensation Committee.

Our corporate offices are located at 1600 Cantrell Road, Little Rock, Arkansas 72201, telephone: 501-376-5200.

## Risk factors

As filed, 29,406 characters.

The risks described in this Item 1A, Risk Factors, of this Annual Report on Form 10-K for the year ended February 2, 2013, could materially and adversely affect our business, financial condition and results of operations.

The Company cautions that forward-looking statements, as such term is defined in the Private Securities Litigation Reform Act of 1995, contained in this Annual Report on Form 10-K are based on estimates, projections, beliefs and assumptions of management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise. Forward-looking statements of the Company involve risks and uncertainties and are subject to change based on various important factors. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of risks, uncertainties and assumptions.

***The retail merchandise business is highly competitive, and that competition could lower our revenues, margins and market share.***

We conduct our retail merchandise business under highly competitive conditions. Competition is characterized by many factors including location, reputation, fashion, merchandise assortment, advertising, operating efficiency, price, quality, customer service and credit availability. We have numerous competitors nationally, locally and on the Internet, including conventional department stores, specialty retailers, off-price and discount stores, boutiques, mass merchants, Internet and mail-order retailers. Although we are a large regional department store, some of our competitors are larger than us with greater financial resources and, as a result, may be able to devote greater resources to sourcing, promoting and selling their products. Additionally, we compete in certain markets with a substantial number of retailers that specialize in one or more types of merchandise that we sell. In recent years, competition has intensified as a result of reduced discretionary consumer spending, increased promotional activity, deep price discounting, and few barriers to entry. Also, online retail shopping is rapidly evolving and we expect competition in the e-commerce market to intensify in the future as the Internet facilitates competitive entry and comparison shopping. We anticipate that intense competition will continue from both existing competitors and new entrants. If we are unable to maintain our competitive position, we could experience downward pressure on prices, lower demand for products, reduced margins, the inability to take advantage of new business opportunities and the loss of market share.

***Changes in economic, financial and political conditions, and the resulting impact on consumer confidence and consumer spending, could have an adverse effect on our business and results of operations.***

The retail merchandise business is highly sensitive to changes in overall economic and political conditions that impact consumer confidence and spending. Various economic conditions affect the level of disposable income consumers have available to spend on the merchandise we offer, including unemployment rates, interest rates, taxation, energy costs, the availability of consumer credit, the price of gasoline, consumer confidence in future economic conditions and general business conditions. Consumer purchases of discretionary items and other retail products generally decline during recessionary periods, and also may decline at other times when changes in consumer spending patterns affect us unfavorably. In addition, any significant decreases in shopping mall traffic, as a result of, among other things, higher gasoline prices, could also have an adverse effect on our results of operations.

In 2008 and 2009, the combination of these factors caused consumer spending in the U.S. to deteriorate significantly. While consumer spending began to improve in 2010 and continued to improve in 2011 and 2012, these factors may cause levels of spending to remain depressed relative to historical levels for the foreseeable future. In addition, these factors may cause consumers to purchase products from lower-priced competitors or to defer purchases of discretionary items altogether.

The ongoing global economic instability continues to cause a great deal of uncertainty domestically and abroad. Additional uncertainty has resulted from the ongoing debate in the United States regarding budgetary concerns, including the U.S. debt. This market uncertainty will likely continue to result in reduced consumer confidence and spending, which could have an adverse effect on our results of operations.

***Our business is dependent upon our ability to accurately predict rapidly changing fashion trends, customer preferences, and other fashion-related factors.***

Our sales and operating results depend in part on our ability to effectively predict and quickly respond to changes in fashion trends and customer preferences. We continuously assess emerging styles and trends and focus on developing a merchandise assortment to meet customer preferences at competitive prices. Even with these efforts, we cannot be certain that we will be able to successfully meet constantly changing fashion trends and customer preferences. If we are unable to successfully predict or respond to changing styles or preferences, we may be faced with lower sales, increased inventories, additional markdowns or promotional sales to dispose of excess or slow-moving inventory, and lower gross margins, all of which would have an adverse effect on our business, financial condition, and results of operations. Additionally, failure to respond rapidly to changing trends could impact our reputation with customers and diminish brand and customer loyalty.

***Our failure to protect our reputation could have an adverse effect on our business.***

We offer our customers quality products at competitive prices and a high level of customer service, resulting in a well-recognized brand and customer loyalty. Any significant damage to our brand or reputation could negatively impact sales, diminish customer trust and generate negative sentiment, any of which would harm our business and results of operation.

***Increases in the price of merchandise, raw materials, fuel and labor or their reduced availability could increase our cost of goods and negatively impact our financial results.***

We have experienced and may continue to experience increases in our merchandise, raw materials, fuel and labor costs. Fluctuations in the price and availability of fuel, labor and raw materials, combined with the inability to mitigate or to pass cost increases on to our customers or to change our merchandise mix as a result of such cost increases, could have an adverse impact on our profitability. Attempts to pass such costs along to our customers, however, might cause a decline in our sales volume. Additionally, any decrease in the availability of raw materials could impair our ability to meet our purchasing requirements in a timely manner. Both the increased cost and lower availability of merchandise, raw materials, fuel and labor may also have an adverse impact on our cash and working capital needs.

***Third party suppliers on whom we rely to obtain materials and provide production facilities may experience financial difficulties due to current and future economic and political conditions.***

Our suppliers may experience financial difficulties due to a downturn in the industry or in other macroeconomic environments. Our suppliers' cash and working capital needs can be adversely impacted by the increased cost and lower availability of merchandise, raw materials, fuel and labor. Current and future economic conditions may prevent our suppliers from obtaining financing on favorable terms, which could impact their ability to supply us with merchandise on a timely basis. Similarly, political or financial instability, changes in U.S. and foreign laws and regulations affecting the importation and taxation of goods, including duties, tariffs and quotas, or changes in the enforcement of those laws and regulations, as well as currency exchange rates, transport capacity and costs and other factors relating to foreign trade and the inability to access suitable merchandise on acceptable terms could adversely impact our results of operations.

***An increase in the cost or a disruption in the flow of our imported goods could decrease our sales and profits.***

We source many of our products from vendors in countries outside of the United States. Any disruption in the flow of imported merchandise, including strikes at ports at home or abroad, or an increase in the cost of those goods may harm our business and decrease our profitability.

All of our suppliers must comply with our supplier compliance programs and applicable laws, including consumer and product safety laws, but we do not control our vendors or their labor and business practices. The violation of labor or other laws by one of our vendors could have an adverse effect on our business. Additionally, although we diversify our sourcing and production by country, the failure of any supplier to produce and deliver our goods on time, to meet our quality standards and adhere to our product safety requirements or to meet the requirements of our supplier compliance program or applicable laws, could impact our ability to flow merchandise to our stores or directly to consumers in the right quantities at the right time, which could adversely affect our profitability and could result in damage to our reputation and translate into sales losses.

***A decrease in cash flows from our operations and constraints to accessing other financing sources could limit our ability to fund our operations, capital projects, interest and debt repayments, stock repurchases and dividends.***

Our business depends upon our operations to generate strong cash flow and to some extent upon the availability of financing sources to supply capital to fund our general operating activities, capital projects, interest and debt repayments, stock repurchases and dividends. Our inability to continue to generate sufficient cash flows to support these activities or the lack of availability of financing in adequate amounts and on appropriate terms when needed could adversely affect our financial performance including our earnings per share.

***Reductions in the income and cash flow from our long-term marketing and servicing alliance related to our proprietary credit cards could impact operating results and cash flows.***

GE owns and manages our proprietary credit cards under the Alliance. The Alliance provides for certain payments to be made by GE to the Company, including a revenue sharing and marketing reimbursement. The income and cash flow that the Company receives from the Alliance is dependent upon a number of factors including the level of sales on GE accounts, the level of balances carried on the GE accounts by GE customers, payment rates on GE accounts, finance charge rates and other fees on GE accounts, the level of credit losses for the GE accounts, GE's ability to extend credit to our customers as well as GE's funding costs, all of which can vary based on changes in federal and state banking and consumer protection laws and from a variety of economic, legal, social and other factors that we cannot control. If the income or cash flow that the Company receives from the Alliance decreases, our operating results and cash flows could be adversely affected.

The Alliance expires in fiscal 2014. If, when the Alliance expires, GE is unable or unwilling to renew and continue owning and managing our proprietary credit cards on similar terms and conditions as exist today or we are unable to quickly and adequately contract with a comparable replacement vendor, then our operating results and cash flows could be adversely affected due to a decrease in credit card sales to our cardholding customers and a loss of revenues attributable to payments from GE. In addition, if our agreement with GE is terminated prior to 2014 under circumstances in which we are unable to quickly and adequately contract with a comparable replacement vendor, holders of our proprietary credit card will be unable to use their cards. This would likely result in a decrease in sales to such customers, a loss of the revenues attributable to the payments from GE and customer dissatisfaction, any or all of which could have an adverse effect on our business and results of operations.

Credit card operations are subject to numerous federal and state laws that impose disclosure and other requirements upon the origination, servicing, and enforcement of credit accounts, and limitations on the amount of finance charges and fees that may be charged by a credit card provider. GE may be subject to regulations that may adversely impact its operation of our proprietary credit card. To the extent that such limitations or regulations materially limit the availability of credit or increase the cost of credit to our cardholders or negatively impact provisions which affect our revenue streams associated with our proprietary credit card, our results of operations could be adversely affected. In addition, changes in credit card use, payment patterns, or default rates could be affected by a variety of economic, legal, social, or other factors over which we have no control and cannot predict with certainty. Such changes could also negatively impact our ability to facilitate consumer credit or increase the cost of credit to our cardholders.

***Our business is seasonal, and fluctuations in our revenues during the last quarter of our fiscal year can have a disproportionate effect on our results of operations.***

Our business, like many other retailers, is subject to seasonal influences, with a significant portion of sales and income typically realized during the last quarter of our fiscal year due to the holiday season. Our fiscal fourth-quarter results may fluctuate significantly, based on many factors, including holiday spending patterns and weather conditions, and any such fluctuation could have a disproportionate effect on our results of operations for the entire fiscal year. Because of the seasonality of our business, our operating results vary considerably from quarter to quarter, and results from any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

***A shutdown of, or disruption in, any of the Company's distribution or fulfillment centers would have an adverse effect on the Company's business and operations.***

Our business depends on the orderly operation of the process of receiving and distributing merchandise, which relies on adherence to shipping schedules and effective management of distribution centers. Although we believe that our receiving and distribution process is efficient and that we have appropriate contingency plans, unforeseen disruptions in operations due to fire, severe weather conditions, natural disasters, or other catastrophic events, labor disagreements, or other shipping problems may result in the loss of inventory and/or delays in the delivery of merchandise to our stores and customers.

***Current store locations may become less desirable, and desirable new locations may not be available for a reasonable price, if at all, either of which could adversely affect our results of operations.***

In order to generate customer traffic and for convenience of our customers, we locate our stores in desirable locations within shopping malls. Our stores benefit from our, other anchor tenants, and other area attractions' ability to generate consumer traffic. They also benefit from the continuing popularity of shopping malls as shopping destinations. Adverse changes in the development of new shopping malls in the United States, the availability or cost of appropriate locations within existing or new shopping malls, competition with other retailers for prominent locations, the success of individual shopping malls and the success of other anchor tenants, or the continued popularity of shopping malls may impact our ability to maintain or grow our sales in our existing stores, as well as our ability to open new stores, which could have an adverse effect on our financial condition or results of operations.

Many shopping mall operators have been severely impacted by the recent global economic downturn. The continuation of the economic slowdown in the United States could impact shopping mall operators' financial ability to develop new shopping malls and properly maintain existing shopping malls, which could adversely affect our sales.

***Ownership and leasing of significant amounts of real estate exposes us to possible liabilities and losses.***

We own the land and building, or lease the land and/or the building, for all of our stores. Accordingly, we are subject to all of the risks associated with owning and leasing real estate. In particular, the value of the assets could decrease, and their operating costs could increase, because of changes in the investment climate for real estate, demographic trends and supply or demand for the use of the store, which may result from competition from similar stores in the area, as well as liability for environmental conditions. If an existing owned store is not profitable, and we decide to close it, we may be required to record an impairment charge and/or exit costs associated with the disposal of the store. We generally cannot cancel our leases. If an existing or future store is not profitable, and we decide to close it, we may be committed to perform certain obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. In addition, as each of the leases expires, we may be unable to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close stores in desirable locations. We may not be able to close an unprofitable owned store due to an existing operating covenant which may cause us to operate the location at a loss and prevent us from finding a more desirable location. We have approximately 75 stores along the Gulf and Atlantic coasts that are covered by third party insurance but are self-insured for property and merchandise losses related to "named storms"; therefore, repair and replacement costs will be borne by us for damage to any of these stores from "named storms".

***Litigation with customers, employees and others could harm our reputation and impact operating results.***

In the ordinary course of business, we may be involved in lawsuits and regulatory actions. We are impacted by trends in litigation, including, but not limited to, class-action allegations brought under various consumer protection and employment laws. Additionally, we may be subject to employment-related claims alleging, discrimination, harassment, wrongful termination and wage issues, including those relating to overtime compensation. We are also susceptible to claims filed by customers alleging responsibility for injury suffered during a visit to a store or from product defects. These types of claims, as well as other types of lawsuits to which we are subject from time to time, can distract management's attention from core business operations and impact operating results, particularly if a lawsuit results in an unfavorable outcome.

### Our profitability may be adversely impacted by weather conditions.

Our merchandise assortments reflect assumptions regarding expected weather patterns and our profitability depends on our ability to timely deliver seasonally appropriate inventory. Unexpected or unseasonable weather conditions could render a portion of our inventory incompatible with consumer needs. For example, extended periods of unseasonably warm temperatures during the winter season or cool weather during the summer season could render a portion of the Company's inventory incompatible with those unseasonable conditions. Additionally, extreme weather or natural disasters, particularly in the areas in which our stores are located, could also severely hinder our ability to timely deliver seasonally appropriate merchandise. For example, frequent or unusually heavy snowfall, ice storms, rainstorms or other extreme weather conditions over a prolonged period could make it difficult for the Company's customers to travel to its stores and thereby reduce the Company's sales and profitability. A reduction in the demand for or supply of our seasonal merchandise or reduced sales due to reduced customer traffic in our stores could have an adverse effect on our inventory levels, gross margins and results of operations.

***Natural disasters, war, acts of terrorism, other armed conflicts, and public health issues may adversely impact our business.***

The occurrence of, or threat of, a natural disaster, war, acts of terrorism, other armed conflicts, and public health issues could disrupt our operations, disrupt international trade and supply chain efficiencies, suppliers or customers, or result in political or economic instability. If commercial transportation is curtailed or substantially delayed our business may be adversely impacted, as we may have difficulty shipping merchandise to our distribution centers, fulfillment centers, stores, or directly to customers. As a result of the occurrence of, or threat of, a natural disaster or acts of terrorism in the United States, we may be required to suspend operations in some or all of our stores, which could have a material adverse impact on our business, financial condition, and results of operations.

***Increases in the cost of employee benefits could impact the Company's financial results and cash flows.***

The Company's expenses relating to employee health benefits are significant. Unfavorable changes in the cost of such benefits could impact the Company's financial results and cash flows. Healthcare costs have risen significantly in recent years, and recent legislative and private sector initiatives regarding healthcare reform could result in significant changes to the U.S. healthcare system. Many of our employees who currently choose not to participate in our healthcare plans may find it more advantageous to do so when recent changes to healthcare laws in the United States become effective in 2014. Such changes include potential fees to persons for not obtaining healthcare coverage and being ineligible for certain healthcare subsidies if an employee is eligible for healthcare coverage under an employer's plan. If a large portion of current eligible employees who currently choose not to participate in our plans choose to enroll when or after the law becomes effective, it may significantly increase our healthcare coverage costs or we may not be able to offer competitive health care benefits to attract and retain employees, either of which could have an adverse effect on our reputation and have a negative impact on our financial results.

***The Company depends on its ability to attract and retain quality employees, and failure to do so could adversely affect our ability to execute our business strategy and our operating results.***

The Company's business is dependent upon attracting and retaining quality employees. The Company has a large number of employees, many of whom are in entry level or part-time positions with historically high rates of turnover. The Company's ability to meet its labor needs while controlling the costs associated with hiring and training new employees is subject to external factors such as unemployment levels, prevailing wage rates, minimum wage legislation and changing demographics. In addition, as a complex enterprise operating in a highly competitive and challenging business environment, the Company is highly dependent upon management personnel to develop and effectively execute successful business strategies and tactics. Any circumstances that adversely impact the Company's ability to attract, train, develop and retain quality employees throughout the organization could adversely affect the Company's business and results of operations.

***Variations in the amount of vendor allowances received could adversely impact our operating results.***

We receive vendor allowances for advertising, payroll and margin maintenance that are a strategic part of our operations. A reduction in the amount of cooperative advertising allowances would likely cause us to consider other methods of advertising as well as the volume and frequency of our product advertising, which could increase/decrease our expenditures and/or revenue. Decreased payroll reimbursements would either cause payroll costs to rise, negatively impacting operating income, or cause us to reduce the number of employees, which may cause a decline in sales. A decline in the amount of margin maintenance allowances would either increase cost of sales, which would negatively impact gross margin and operating income, or cause us to reduce merchandise purchases, which may cause a decline in sales.

***Our operations are dependent on information technology systems, and disruptions in those systems could have an adverse impact on our results of operations.***

Our operations are dependent upon the integrity, security and consistent operation of various systems and data centers, including the point-of-sale systems in the stores, our Internet website, data centers that process transactions, communication systems and various software applications used throughout our Company to track inventory flow, process transactions and generate performance and financial reports. The Company's computer systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, cyber-attack or other security breaches, catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes, acts of war or terrorism, and usage errors by the Company's employees. If the Company's computer systems are damaged or cease to function properly, the Company may have to make a significant investment to repair or replace them, and the Company may suffer loss of critical data and interruptions or delays in its operations in the interim. Any material interruption in the Company's computer systems could adversely affect its business or results of operations. Additionally, to keep pace with changing technology, we must continuously provide for the design and implementation of new information technology systems and enhancements of our existing systems. We could encounter difficulties in developing new systems or maintaining and upgrading existing systems. Such difficulties could lead to significant expenses or to losses due to disruption in business operations.

***A privacy breach could adversely affect our business, reputation and financial condition.***

The protection of customer, employee and Company data is critical to us. The regulatory environment surrounding information security and privacy is increasingly demanding, with the frequent imposition of new and constantly changing requirements. We receive certain personal information about our customers and employees. In addition, our online operations at www.dillards.com depend upon the secure transmission of confidential information over public networks, including information permitting cashless payments. A compromise that results in personal information being obtained by unauthorized persons could adversely affect our reputation with our customers, employees and others, as well as our operations, results of operations, financial condition and liquidity, and could result in litigation against us or the imposition of penalties. In addition, a security breach could require that we expend significant additional resources related to our information security systems and could result in a disruption of our operations, particularly our online sales operations.

***The percentage-of-completion method of accounting that we use to recognize contract revenues for our construction segment may result in material adjustments, which could result in a charge against our earnings.***

Our construction segment recognizes contract revenues using the percentage-of-completion method. Under this method, estimated contract revenues are recognized by applying the percentage of completion of the project for the period to the total estimated revenues for the contract. Estimated contract losses are recognized in full when determined. Total contract revenues and cost estimates are reviewed and revised at a minimum on a quarterly basis as the work progresses and as change orders are approved. Adjustments based upon the percentage of completion are reflected in contract revenues in the period when these estimates are revised. To the extent that these adjustments result in an increase, a reduction or an elimination of previously reported contract profit, we are required to recognize a credit or a charge against current earnings, which could be material.

## Properties

As filed, 2,660 characters.

All of our stores are owned by us or leased from third parties. At February 2, 2013, we operated 302 stores in 29 states totaling approximately 51.0 million square feet of which we owned approximately 44.7 million square feet. Our third-party store leases typically provide for rental payments based on a percentage of net sales with a guaranteed minimum annual rent. In general, the Company pays the cost of insurance, maintenance and real estate taxes related to the leases.

The following table summarizes by state of operation the number of retail stores we operate and the corresponding owned and leased footprint at February 2, 2013:

| Location | Number of stores | Owned Stores | Leased Stores | Owned Building on Leased Land | Partially Owned and Partially Leased |
| --- | ---: | ---: | ---: | ---: | ---: |
| Alabama | 10 | 10 | — | — | — |
| Arkansas | 8 | 7 | — | — | 1 |
| Arizona | 17 | 16 | — | 1 | — |
| California | 3 | 3 | — | — | — |
| Colorado | 8 | 8 | — | — | — |
| Florida | 42 | 39 | — | 3 | — |
| Georgia | 12 | 8 | 3 | 1 | — |
| Iowa | 5 | 5 | — | — | — |
| Idaho | 2 | 1 | 1 | — | — |
| Illinois | 3 | 3 | — | — | — |
| Indiana | 3 | 3 | — | — | — |
| Kansas | 6 | 3 | 1 | 2 | — |
| Kentucky | 6 | 5 | 1 | — | — |
| Louisiana | 14 | 13 | 1 | — | — |
| Missouri | 10 | 7 | 1 | 2 | — |
| Mississippi | 6 | 4 | 1 | 1 | — |
| Montana | 2 | 2 | — | — | — |
| North Carolina | 16 | 14 | 1 | 1 | — |
| Nebraska | 3 | 2 | 1 | — | — |
| New Mexico | 6 | 3 | 3 | — | — |
| Nevada | 4 | 4 | — | — | — |
| Ohio | 15 | 10 | 5 | — | — |
| Oklahoma | 10 | 6 | 4 | — | — |
| South Carolina | 8 | 8 | — | — | — |
| Tennessee | 10 | 8 | 1 | — | 1 |
| Texas | 60 | 44 | 10 | 1 | 5 |
| Utah | 6 | 4 | 2 | — | — |
| Virginia | 6 | 4 | 1 | 1 | — |
| Wyoming | 1 | 1 | — | — | — |
| Total | 302 | 245 | 37 | 13 | 7 |

11

At February 2, 2013, we operated the following additional facilities:

| Facility | Location | Square Feet | Owned / Leased |
| --- | --- | ---: | --- |
| Distribution Centers: | Mabelvale, AR | 400,000 | Owned |
|  | Gilbert, AZ | 295,000 | Owned |
|  | Valdosta, GA | 370,000 | Owned |
|  | Olathe, KS | 500,000 | Owned |
|  | Salisbury, NC | 355,000 | Owned |
|  | Ft. Worth, TX | 700,000 | Owned |
| Internet Fulfillment Center | Maumelle, AR | 850,000 | Owned |
| Dillard's Executive Offices | Little Rock, AR | 333,000 | Owned |
| CDI Contractors, LLC Executive Office | Little Rock, AR | 25,000 | Owned |
| CDI Storage Facilities | Maumelle, AR | 66,000 | Owned |
| Total |  | 3,894,000 |  |

Additional property information is contained in Notes 1, 12 and 13 of "Notes to Consolidated Financial Statements," in Item 8 hereof.

## Legal proceedings

As filed, 583 characters.

From time to time, the Company is involved in litigation relating to claims arising out of the Company's operations in the normal course of business. This may include litigation with customers, employment related lawsuits, class action lawsuits, purported class action lawsuits and actions brought by governmental authorities. As of March 28, 2013, the Company is not a party to any legal proceedings that, individually or in the aggregate, are reasonably expected to have a material adverse effect on the Company's business, results of operations, financial condition or cash flows.

## Management's discussion and analysis

As filed, 73,872 characters.

### EXECUTIVE OVERVIEW

Dillard's, Inc. operates 302 retail department stores spanning 29 states and an Internet store. Our retail stores are located in fashion-oriented shopping malls and open-air centers and offer a broad selection of fashion apparel, cosmetics and home furnishings. We offer an appealing and attractive assortment of merchandise to our customers at a fair price, including national brand merchandise as well as our exclusive brand merchandise. We seek to enhance our income by maximizing the sale of this merchandise to our customers by promoting and advertising our merchandise and by making our stores an attractive and convenient place for our customers to shop.

The Company also operates CDI, a general contractor whose business includes constructing and remodeling stores for the Company, which is a reportable segment separate from our retail operations.

In accordance with the National Retail Federation fiscal reporting calendar, the fiscal 2012 reporting period presented and discussed below ended February 2, 2013 and contained 53 weeks. The fiscal 2011 and 2010 reporting periods presented and discussed below ended January 28, 2012 and January 29, 2011, respectively, and each contained 52 weeks. For comparability purposes, where noted, some of the information discussed below is based upon comparison of the 52 weeks ended February 2, 2013 to the 52 weeks ended February 4, 2012.

### Fiscal 2012

Our operating performance continued to improve during fiscal 2012. Retail sales were higher than last year, as we ended the year with our 10th consecutive quarter of comparable store sales increases. Gross margin improved over last year, mainly from progress in the second half of the year, and operating spending was leveraged. We repurchased $185.5 million, or 2.8 million shares, of our Class A Common Stock during the year. Net income was $336.0 million, or $6.87 per share, for the year, and operating cash flow increased $21.6 million over last year, further enabling the Company to return $252.3 million of dividends to our shareholders, including a special dividend of $5.00 per share.

Included in net income for fiscal 2012 are:

an $11.4 million pretax gain ($7.4 million after tax or $0.15 per share) related to the sale of three former retail store locations.

a $1.6 million pretax charge ($1.0 million after tax or $0.02 per share) for asset impairment and store closing charges related to the write-down of a property held for sale and of an operating property.

a $1.7 million income tax benefit ($0.03 per share) due to a reversal of a valuation allowance related to a deferred tax asset consisting of a capital loss carryforward.

an $18.1 million income tax benefit ($0.37 per share) due to a one-time deduction related to dividends paid to the Dillard's, Inc. Investment and Employee Stock Ownership Plan.

Included in net income of $463.9 million ($8.52 per share) for fiscal 2011 are:

a $201.6 million income tax benefit ($3.70 per share) due to a reversal of a valuation allowance related to the amount of the capital loss carryforward used to offset the capital gain income recognized on the taxable transfer of properties to our REIT.

a $44.5 million pretax gain ($28.7 million after tax or $0.53 per share), net of settlement related expenses, related to the settlement of a lawsuit with JDA Software Group for $57.0 million.

a $4.2 million pretax gain ($2.7 million after tax or $0.05 per share) related to a distribution from a mall joint venture.

a $2.1 million pretax gain ($1.4 million after tax or $0.03 per share) related to the sale of an interest in a mall joint venture.

a $1.3 million pretax gain ($0.9 million after tax or $0.02 per share) related to the sale of two former retail store locations.

a $1.2 million pretax charge ($0.8 million after tax or $0.01 per share) for asset impairment and store closing charges related to the write-down of one property held for sale.

Highlights of fiscal 2012 include:

A comparable store sales increase of 4% over the prior year based on comparable 52-week periods;

Retail operations gross margin improvement of 30 basis points of sales over the prior year. Retail operations gross margin as a percent of sales were 36.1% and 35.8% for fiscal 2012 and fiscal 2011, respectively;

Operating expense leverage of 60 basis points of sales over the prior year. Operating expenses as a percent of sales were 25.4% and 26.0% for fiscal 2012 and fiscal 2011, respectively;

Net income of $336.0 million ($6.87 per share);

Cash flow from operations increase of $21.6 million over the prior year. Operating cash flows were $522.7 million during fiscal 2012 compared to $501.1 million during fiscal 2011;

Repurchase of $185.5 million (or 2.8 million shares) of the Company's Class A Common Stock; and

Payment of $252.3 million in dividends during fiscal 2012 (including a special dividend of $5.00 per share) compared to dividends of $10.0 million paid during fiscal 2011.

As of February 2, 2013, we had working capital of $724.9 million (including cash and cash equivalents of $124.1 million) and $814.8 million of total debt outstanding, with no scheduled maturities until late fiscal 2017. We operated 302 total stores as of February 2, 2013, a decrease of two stores from the same period last year.

### Key Performance Indicators

We use a number of key indicators of financial condition and operating performance to evaluate the performance of our business, including the following:

|  | Fiscal 2012 | Fiscal 2011 | Fiscal 2010 |
| --- | ---: | ---: | ---: |
| Net sales (in millions) | $6,593.2 | $6,263.6 | $6,121.0 |
| Gross profit (in millions) | $2,346.1 | $2,216.3 | $2,140.1 |
| Gross profit as a percentage of net sales | 35.6% | 35.4% | 35.0% |
| Retail gross profit as a percentage of net sales | 36.1% | 35.8% | 35.5% |
| Selling, general and administrative expenses as a percentage of net sales | 25.4% | 26.0% | 26.6% |
| Cash flow from operations (in millions) | $522.7 | $501.1 | $512.9 |
| Total retail store count at end of period | 302 | 304 | 308 |
| Retail sales per square foot | $129 | $121 | $116 |
| Retail stores sales trend | 3 %\*\* | 3% | 2% |
| Comparable retail store sales trend | 4 %\*\* | 4% | 3% |
| Comparable retail store inventory trend | (1)% | 3% | (2)% |
| Retail merchandise inventory turnover | 2.9 | 2.8 | 2.8 |

Based upon the 52 weeks ended February 2, 2013 and 52 weeks ended February 4, 2012

### Trends and Uncertainties

Fluctuations in the following key trends and uncertainties may have a material effect on our operating results.

Cash flow—Cash from operating activities is a primary source of liquidity that is adversely affected when the industry faces economic challenges. Furthermore, operating cash flow can be negatively affected when new and existing competitors seek areas of growth to expand their businesses.

Pricing—If our customers do not purchase our merchandise offerings in sufficient quantities, we respond by taking markdowns. If we have to reduce our retail selling prices, the cost of sales on our consolidated statement of income will correspondingly rise, thus reducing our income and cash flow.

Success of brand—The success of our exclusive brand merchandise as well as merchandise we source from national vendors is dependent upon customer fashion preferences and how well we can predict and anticipate trends.

Sourcing—Our store merchandise selection is dependent upon our ability to acquire appealing products from a number of sources. Our ability to attract and retain compelling vendors as well as in-house design talent, the adequacy and stable availability of materials and production facilities from which we source our merchandise and the speed at which we can respond to customer trends and preferences all have a significant impact on our merchandise mix and, thus, our ability to sell merchandise at profitable prices.

Store growth—Our ability to open new stores is dependent upon a number of factors, such as the identification of suitable markets and locations and the availability of shopping developments, especially in a weak economic environment. Store growth can be further hindered by mall attrition and subsequent closure of underperforming properties.

### Seasonality and Inflation

Our business, like many other retailers, is subject to seasonal influences, with a significant portion of sales and income typically realized during the last quarter of our fiscal year due to the holiday season. Because of the seasonality of our business, results from any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

We do not believe that inflation has had a material effect on our results during the periods presented; however, our business could be affected by such in the future.

### 2013 Guidance

A summary of estimates on key financial measures for fiscal 2013 is shown below.

*(in millions of dollars)*

|  | Fiscal 2013 Estimated | Fiscal 2012 Actual |
| --- | ---: | ---: |
| Depreciation and amortization | $261 | $260 |
| Rentals | 27 | 35 |
| Interest and debt expense, net | 65 | 70 |
| Capital expenditures | 175 | 137 |

### General

**Net sales.** Net sales include merchandise sales of comparable and non-comparable stores and revenue recognized on contracts of CDI, the Company's general contracting construction company. Comparable store sales include sales for those stores which were in operation for a full period in both the current month and the corresponding month for the prior year. Comparable store sales exclude the change in the allowance for sales returns. Non-comparable store sales include: sales in the current fiscal year from stores opened during the previous fiscal year before they are considered comparable stores; sales from new stores opened during the current fiscal year; sales in the previous fiscal year for stores closed during the current or previous fiscal year that are no longer considered comparable stores; sales in clearance centers; and changes in the allowance for sales returns.

**Service charges and other income.** Service charges and other income include income generated through the Alliance with GE. Other income includes rental income, shipping and handling fees, gift card breakage and lease income on leased departments.

**Cost of sales.** Cost of sales includes the cost of merchandise sold (net of purchase discounts and non-specific margin maintenance allowances), bankcard fees, freight to the distribution centers, employee and promotional discounts, and direct payroll for salon personnel. Cost of sales also includes CDI contract costs, which comprise all direct material and labor costs, subcontract costs and those indirect costs related to contract performance, such as indirect labor, employee benefits and insurance program costs.

**Selling, general and administrative expenses.** Selling, general and administrative expenses include buying, occupancy, selling, distribution, warehousing, store and corporate expenses (including payroll and employee benefits), insurance, employment taxes, advertising, management information systems, legal and other corporate level expenses. Buying expenses consist of payroll, employee benefits and travel for design, buying and merchandising personnel.

**Depreciation and amortization.** Depreciation and amortization expenses include depreciation and amortization on property and equipment.

**Rentals.** Rentals include expenses for store leases, including contingent rent, and data processing and other equipment rentals.

**Interest and debt expense, net.** Interest and debt expense includes interest, net of interest income, relating to the Company's unsecured notes, mortgage note, term note, subordinated debentures and borrowings under the Company's credit facility. Interest and debt expense also includes gains and losses on note repurchases, if any, amortization of financing costs and interest on capital lease obligations.

**Gain on litigation settlement.** Gain on litigation settlement includes the proceeds received, net of related expenses, from the settlement of a lawsuit with JDA Software Group.

**Gain on disposal of assets.** Gain on disposal of assets includes the net gain or loss on the sale or disposal of property and equipment and the gain on the sale of an interest in a mall joint venture, if any.

**Asset impairment and store closing charges.** Asset impairment and store closing charges consist of write-downs to fair value of under-performing or held for sale properties and exit costs associated with the closure of certain stores. Exit costs include future rent, taxes and common area maintenance expenses from the time the stores are closed.

**Income on (equity in losses of) joint ventures.** Income on (equity in losses of) joint ventures includes the Company's portion of the income or loss of the Company's unconsolidated joint ventures as well as a distribution of excess cash from one of the Company's mall joint ventures.

### Critical Accounting Policies and Estimates

The Company's significant accounting policies are also described in Note 1 of Notes to Consolidated Financial Statements. As disclosed in that note, the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company evaluates its estimates and judgments on an ongoing basis and predicates those estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Since future events and their effects cannot be determined with absolute certainty, actual results could differ from those estimates.

Management of the Company believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in preparation of the Consolidated Financial Statements.

**Merchandise inventory.** Approximately 96% of the Company's inventories are valued at the lower of cost or market using the last-in, first-out retail inventory method ("LIFO RIM"). Under LIFO RIM, 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. LIFO RIM is an averaging method that is widely used in the retail industry due to its practicality. Inherent in the LIFO RIM 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 retail inventory method ("FIFO RIM") may be lower than the LIFO RIM method. Additionally, inventory values at LIFO RIM cost may be in excess of net realizable value. At February 2, 2013 and January 28, 2012, the Company reduced the value of inventories on LIFO RIM to the FIFO RIM value, which approximates market value. Cost of sales during fiscal 2012, 2011 and 2010 under both the FIFO RIM and LIFO RIM methods was the same. The remaining 4% of the inventories are valued at the lower of cost or market using the average cost or specific identified cost methods. A 1% change in the dollar amount of markdowns would have impacted net income by approximately $10 million for fiscal 2012.

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. The differences between the estimated amounts of shrinkage and the actual amounts realized during the past three years have not been material.

**Revenue recognition.** The Company's retail operations segment recognizes revenue upon the sale of merchandise to its customers, net of anticipated returns of merchandise. The provision for sales returns is based on historical evidence of our return rate. We recorded an allowance for sales returns of $6.5 million and $9.0 million as of February 2, 2013 and January 28, 2012, respectively. Adjustments to earnings resulting from revisions to estimates on our sales return provision were not material for the years ended February 2, 2013, January 28, 2012 and January 29, 2011.

The Company's share of income earned under the Alliance with GE involving the Dillard's branded proprietary credit cards 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. 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 credit cards and accepts payments on the proprietary credit cards in its stores as a convenience to customers who prefer to pay in person rather than by paying online or mailing their payments to GE.

Revenues from CDI construction contracts are 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.

**Vendor allowances.** The Company receives concessions from vendors through a variety of programs and arrangements, including co-operative advertising, payroll reimbursements and margin maintenance programs.

Cooperative advertising allowances are reported as a reduction of advertising expense in the period in which the advertising occurred. If vendor advertising allowances were substantially reduced or eliminated, the Company would likely consider other methods of advertising as well as the volume and frequency of our product advertising, which could increase or decrease our expenditures. Similarly, we are not able to assess the impact of vendor advertising allowances on creating additional revenues, as such allowances do not directly generate revenues for our stores.

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 2, 2013 and January 28, 2012, insurance accruals of $48.7 million and $50.3 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 2012 and 2011, 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 $3.2 million for fiscal 2012.

**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 2, 2013 and January 28, 2012 was $5.4 million and $8.5 million, respectively, of which $3.9 million and $5.8 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 2012, 2011 and 2010 was $(2.1) million, $(0.2) million, and $(2.3) million, respectively. The total accrued interest and penalties in the consolidated balance sheets as of February 2, 2013 and January 28, 2012 was $1.4 million and $3.4 million, respectively.

The Company is currently under examination by various state and local taxing jurisdictions for various fiscal years. The tax years that remain subject to examination for major tax jurisdictions are fiscal tax years 2009 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 finalization of the Company's various state income tax audits and lapse of statutes of limitation. The Company does not expect a material change in unrecognized tax benefits in the next twelve months.

**Pension obligations.** The discount rate that the Company utilizes for determining future pension obligations is based on the Citigroup Above Median Pension Index Curve on its annual measurement date and is matched to the future expected cash flows of the benefit plans by annual periods. The discount rate decreased to 4.0% as of February 2, 2013 from 4.3% as of January 28, 2012. We believe that these assumptions have been appropriate and that, based on these assumptions, the pension liability of $176 million is appropriately stated as of February 2, 2013; however, actual results may differ materially from those estimated and could have a material impact on our consolidated financial statements. A further 50 basis point change in the discount rate would increase or decrease the pension liability by approximately $11.1 million. The Company expects to make a contribution to the pension plan of approximately $4.8 million in fiscal 2013. The Company expects pension expense to be approximately $15.7 million in fiscal 2013 with a liability of $186.5 million at February 1, 2014.

### RESULTS OF OPERATIONS

The following table sets forth the results of operations and percentage of net sales, for the periods indicated:

*(in thousands of dollars)*

|  | For the years ended February 2, 2013 Amount | % of Net Sales | January 28, 2012 Amount | % of Net Sales | January 29, 2011 Amount | % of Net Sales |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $6,593,169 | 100.0% | $6,263,600 | 100.0% | $6,120,961 | 100.0% |
| Service charges and other income | 158,426 | 2.4 | 141,884 | 2.3 | 137,384 | 2.2 |
|  | 6,751,595 | 102.4 | 6,405,484 | 102.3 | 6,258,345 | 102.2 |
| Cost of sales | 4,247,108 | 64.4 | 4,047,269 | 64.6 | 3,980,873 | 65.0 |
| Selling, general and administrative expenses | 1,671,526 | 25.4 | 1,630,907 | 26.0 | 1,625,793 | 26.6 |
| Depreciation and amortization | 259,621 | 3.9 | 257,685 | 4.1 | 261,550 | 4.3 |
| Rentals | 34,838 | 0.5 | 48,110 | 0.8 | 51,045 | 0.8 |
| Interest and debt expense, net | 69,596 | 1.1 | 72,059 | 1.2 | 73,792 | 1.2 |
| Gain on litigation settlement | — | 0.0 | (44,460) | (0.7) | — | 0.0 |
| Gain on disposal of assets | (12,435) | (0.2) | (3,955) | 0.0 | (5,632) | (0.1) |
| Asset impairment and store closing charges | 1,591 | 0.0 | 1,200 | 0.0 | 2,208 | 0.0 |
| Income before income taxes and income on (equity in losses of) joint ventures | 479,750 | 7.3 | 396,669 | 6.3 | 268,716 | 4.4 |
| Income taxes (benefit) | 145,060 | 2.2 | (62,518) | (1.0) | 84,450 | 1.4 |
| Income on (equity in losses of) joint ventures | 1,272 | 0.0 | 4,722 | 0.1 | (4,646) | (0.1) |
| Net income | $335,962 | 5.1% | $463,909 | 7.4% | $179,620 | 2.9% |

26

### Sales

*(in thousands of dollars)*

| Net sales: | Fiscal 2012 | Fiscal 2011 | Fiscal 2010 |
| --- | ---: | ---: | ---: |
| Retail operations segment | $6,489,366 | $6,193,903 | $6,020,043 |
| Construction segment | 103,803 | 69,697 | 100,918 |
| Total net sales | $6,593,169 | $6,263,600 | $6,120,961 |

The percent change by segment and product category in the Company's sales for the past two years is as follows:

| Retail operations segment | Percent Change Fiscal 2012 - 2011 | Fiscal 2012 - 2011\* | Fiscal 2011 - 2010 |
| --- | ---: | ---: | ---: |
| Cosmetics | 4.0% | 2.5% | 4.7% |
| Ladies' apparel | 2.7 | 1.0 | 0.1 |
| Ladies' accessories and lingerie | 10.2 | 8.8 | 5.4 |
| Juniors' and children's apparel | 3.5 | 1.9 | 3.7 |
| Men's apparel and accessories | 6.9 | 5.6 | 2.8 |
| Shoes | 5.4 | 3.7 | 5.6 |
| Home and furniture | (4.6) | (5.8) | (2.8) |
| Construction segment | 48.9 |  | (30.9) |

Based upon the 52 weeks ended February 2, 2013 and 52 weeks ended February 4, 2012

### 2012 Compared to 2011

Net sales from the retail operations segment increased $295.5 million or 5% during fiscal 2012 as compared to fiscal 2011. During the 52 weeks ended February 2, 2013 as compared to the 52 weeks ended February 4, 2012, total sales increased 3%, and sales in comparable stores increased 4%. During the same 52-week periods, sales of ladies' accessories and lingerie and men's apparel and accessories increased significantly over the prior year, while sales of shoes, cosmetics and juniors' and children's apparel increased moderately. Sales of ladies' apparel increased slightly between the same 52-week periods while sales in the home and furniture category were down significantly.

The number of sales transactions during fiscal 2012 decreased 1% over fiscal 2011 while the average dollars per sales transaction increased 5%.

We believe that we may continue to see some sales growth in the retail operations segment during fiscal 2013 as compared to fiscal 2012; however, there is no guarantee of improved sales performance.

Net sales from the construction segment increased $34.1 million or 49% during fiscal 2012 as compared to fiscal 2011 due to an increase in new construction projects. We believe we will continue to see some sales growth in the construction segment during fiscal 2013; however, there is no guarantee of improved sales performance. The backlog of awarded construction contracts at February 2, 2013 totaled $159.3 million.

### 2011 Compared to 2010

Net sales from the retail operations segment increased $173.9 million or 3% during fiscal 2011 as compared to fiscal 2010 while sales in comparable stores improved 4%. Sales of shoes, cosmetics and ladies' accessories and lingerie were up significantly while sales of juniors' and children's apparel and men's apparel and accessories increased moderately. Sales of ladies' apparel were essentially flat, and sales in the home and furniture category were down moderately.

The number of sales transactions decreased 2% over the prior year while the average dollars per sales transaction increased significantly.

Net sales from the construction segment decreased $31.2 million or 31% during fiscal 2011 as compared to fiscal 2010. This decrease was primarily attributable to the negative impact that the weak United States economy had in previous periods on our construction project backlog.

### Exclusive Brand Merchandise

Sales penetration of exclusive brand merchandise for fiscal years 2012, 2011 and 2010 was 21.6%, 21.8% and 22.7% of total net sales, respectively.

### Service Charges and Other Income

*(in millions of dollars)*

| Service charges and other income: Retail operations segment | Fiscal 2012 | Fiscal 2011 | Fiscal 2010 | Dollar Change 2012 - 2011 | 2011 - 2010 | Percent Change 2012 - 2011 | 2011 - 2010 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Income from GE marketing and servicing alliance | $107.1 | $95.8 | $84.7 | $11.3 | $11.1 | 11.8% | 13.1% |
| Leased department income | 10.8 | 10.1 | 10.0 | 0.7 | 0.1 | 6.9 | 1.0 |
| Shipping and handling income | 19.1 | 18.4 | 17.2 | 0.7 | 1.2 | 3.8 | 7.0 |
| Hurricane settlement | — | — | 7.5 | — | (7.5) | — | (100.0) |
| Other | 21.3 | 16.9 | 16.3 | 4.4 | 0.6 | 26.0 | 3.7 |
|  | 158.3 | 141.2 | 135.7 | 17.1 | 5.5 | 12.1 | 4.1 |
| Construction segment | 0.1 | 0.7 | 1.7 | (0.6) | (1.0) | (85.7) | (58.8) |
| Total | $158.4 | $141.9 | $137.4 | $16.5 | $4.5 | 11.6% | 3.3% |

### 2012 Compared to 2011

Service charges and other income is composed primarily of income from the Alliance with GE. Income from the Alliance increased $11.3 million in fiscal 2012 compared to fiscal 2011 primarily due to increases in finance charge and late charge fee income and decreased credit losses.

### 2011 Compared to 2010

Income from the Alliance increased $11.1 million in fiscal 2011 compared to fiscal 2010 due to decreased credit losses partially offset by reduced finance charge and late charge fee income.

Also included in service charges and other income during fiscal 2010 were proceeds of $7.5 million received as final payment related to hurricane losses.

### Gross Profit

*(in thousands of dollars)*

| Gross profit: | Fiscal 2012 | Fiscal 2011 | Fiscal 2010 |
| --- | ---: | ---: | ---: |
| Retail operations segment | $2,340,754 | $2,215,232 | $2,138,103 |
| Construction segment | 5,307 | 1,099 | 1,985 |
| Total gross profit | $2,346,061 | $2,216,331 | $2,140,088 |
| **Gross profit as a percentage of segment net sales:** |  |  |  |
| Retail operations segment | 36.1% | 35.8% | 35.5% |
| Construction segment | 5.1 | 1.6 | 2.0 |
| **Total gross profit as a percentage of net sales** | 35.6 | 35.4 | 35.0 |

### 2012 Compared to 2011

Gross profit improved 20 basis points of sales during fiscal 2012 compared to fiscal 2011. Gross profit from retail operations improved 30 basis points of sales during the same periods as a result of decreased markdowns and increased markups. Inventory in comparable stores decreased 1% as of February 2, 2013 compared to January 28, 2012.

During fiscal 2012, gross margin improved moderately in the home and furniture category and improved slightly in ladies' accessories and lingerie. Gross margin in all other product categories was essentially flat.

We believe that gross profit from retail operations will improve slightly during fiscal 2013 as compared to fiscal 2012; however, there is no guarantee of improved gross margin performance.

Gross profit from the construction segment improved $4.2 million (350 basis points of sales). The improvement was due to increased revenue and improved fee percentages on new contracts as well as a $1.2 million loss that was recorded during fiscal 2011 on an electrical contract that was completed during that period.

### 2011 Compared to 2010

Gross profit improved 40 basis points of sales during fiscal 2011 compared to fiscal 2010. Gross profit from retail operations improved 30 basis points of sales during the same periods as a result of increased markups partially offset by increased markdowns. Inventory in comparable stores increased 3% as of January 28, 2012 compared to January 29, 2011.

During fiscal 2011, gross margin improved moderately in the home and furniture category and improved slightly in shoes and ladies' apparel. Ladies' accessories and lingerie and men's apparel and accessories experienced a slight decline in gross margin while all other merchandise categories were flat.

Gross profit from the construction segment declined 40 basis points of sales during fiscal 2011 compared to fiscal 2010. This decline from the prior year was a result of fewer projects caused by the reduction in demand for construction services combined with pricing pressures in an already competitive marketplace. This decline was also due to a $1.2 million loss recorded during the year on an electrical contract partially offset by a $2.5 million loss recorded in the prior year on certain electrical contracts stemming from job delays related to bad weather and job underperformance.

### Selling, General and Administrative Expenses ("SG&A")

*(in thousands of dollars)*

| SG&A: | Fiscal 2012 | Fiscal 2011 | Fiscal 2010 |
| --- | ---: | ---: | ---: |
| Retail operations segment | $1,666,798 | $1,626,142 | $1,621,190 |
| Construction segment | 4,728 | 4,765 | 4,603 |
| Total SG&A | $1,671,526 | $1,630,907 | $1,625,793 |
| **SG&A as a percentage of segment net sales:** |  |  |  |
| Retail operations segment | 25.7% | 26.3% | 26.9% |
| Construction segment | 4.6 | 6.8 | 4.6 |
| **Total SG&A as a percentage of net sales** | 25.4 | 26.0 | 26.6 |

### 2012 Compared to 2011

SG&A improved 60 basis points of sales during fiscal 2012 compared to fiscal 2011 while total SG&A dollars increased $40.6 million. The dollar increase was most noted in: payroll and payroll related taxes ($42.9 million), primarily due to the 53rd week of fiscal 2012 as well as increases in selling payroll; services purchased ($9.6 million); and insurance ($6.7 million). These increases were partially offset by decreased net advertising expenditures ($21.5 million).

We believe that SG&A will improve slightly as a percentage of sales during fiscal 2013 as compared to fiscal 2012; however, there is no guarantee of improved SG&A performance.

### 2011 Compared to 2010

SG&A improved 60 basis points of sales during fiscal 2011 compared to fiscal 2010 while total SG&A dollars increased $5.1 million. The dollar increase was most noted in payroll and payroll related taxes ($12.7 million), primarily of selling payroll, supplies ($6.6 million), and services purchased ($2.8 million) and partially offset by decreased net advertising expenditures ($8.5 million) and utilities ($6.7 million).

### Depreciation and Amortization

*(in thousands of dollars)*

| Depreciation and amortization: | Fiscal 2012 | Fiscal 2011 | Fiscal 2010 |
| --- | ---: | ---: | ---: |
| Retail operations segment | $259,414 | $257,504 | $261,368 |
| Construction segment | 207 | 181 | 182 |
| Total depreciation and amortization | $259,621 | $257,685 | $261,550 |

### 2012 Compared to 2011

Depreciation and amortization expense increased $1.9 million during fiscal 2012 compared to fiscal 2011.

### 2011 Compared to 2010

Depreciation and amortization expense decreased $3.9 million during fiscal 2011 compared to fiscal 2010 primarily as a result of reduced capital expenditures and store closures.

### Rentals

*(in thousands of dollars)*

| Rentals: | Fiscal 2012 | Fiscal 2011 | Fiscal 2010 |
| --- | ---: | ---: | ---: |
| Retail operations segment | $34,787 | $48,058 | $50,967 |
| Construction segment | 51 | 52 | 78 |
| Total rentals | $34,838 | $48,110 | $51,045 |

### 2012 Compared to 2011

Rental expense declined $13.3 million or 27.6% in fiscal 2012 compared to fiscal 2011 primarily due to a reduction in the amount of equipment leased by the Company.

We believe that rental expense will decline significantly during fiscal 2013, with a current projected reduction of approximately $8 million from fiscal 2012, primarily as a result of the expiration of certain equipment leases.

### 2011 Compared to 2010

Rental expense declined $2.9 million or 5.7% in fiscal 2011 compared to fiscal 2010 primarily due to a decrease in the amount of equipment leased by the Company.

### Interest and Debt Expense, Net

*(in thousands of dollars)*

| Interest and debt expense (income), net: | Fiscal 2012 | Fiscal 2011 | Fiscal 2010 |
| --- | ---: | ---: | ---: |
| Retail operations segment | $69,719 | $72,218 | $74,009 |
| Construction segment | (123) | (159) | (217) |
| Total interest and debt expense, net | $69,596 | $72,059 | $73,792 |

### 2012 Compared to 2011

Net interest and debt expense declined $2.5 million in fiscal 2012 compared to fiscal 2011 primarily due to lower average debt levels partially offset by increased credit facility fees as well as an increase of interest resulting from the 53rd week of fiscal 2012. Total weighted average debt outstanding during fiscal 2012 decreased approximately $106.6 million compared to fiscal 2011.

### 2011 Compared to 2010

Net interest and debt expense declined $1.7 million in fiscal 2011 compared to fiscal 2010 primarily due to matured and repurchased outstanding notes partially offset by increased short-term borrowing costs. Total weighted average debt outstanding during fiscal 2011 increased approximately $33.3 million compared to fiscal 2010.

### Gain on Litigation Settlement

*(in thousands of dollars)*

| Gain on litigation settlement: | Fiscal 2012 | Fiscal 2011 | Fiscal 2010 |
| --- | ---: | ---: | ---: |
| Retail operations segment | $— | $44,460 | $— |
| Construction segment | — | — | — |
| Total gain on litigation settlement | $— | $44,460 | $— |

31

The Company reached an agreement effective November 30, 2011 with i2 Technologies, Inc. ("i2"), a subsidiary of JDA Software Group, Inc. ("JDA"), to settle a lawsuit filed by Dillard's against i2 over software sold to Dillard's by i2 in 2000, prior to JDA's acquisition of i2 in 2010. Pursuant to the agreement, i2 paid Dillard's $57.0 million during fiscal 2011. After providing for settlement related expenses, the Company recorded $44.5 million in gain on litigation settlement.

### Gain on Disposal of Assets

*(in thousands of dollars)*

| Gain (loss) on disposal of assets: | Fiscal 2012 | Fiscal 2011 | Fiscal 2010 |
| --- | ---: | ---: | ---: |
| Retail operations segment | $12,434 | $4,019 | $5,620 |
| Construction segment | 1 | (64) | 12 |
| Total gain on disposal of assets | $12,435 | $3,955 | $5,632 |

### Fiscal 2012

During fiscal 2012, the Company sold five former retail stores and one building that was a portion of a currently operating retail location. Four of the former retail stores were held for sale and were located in Charlotte, North Carolina; Cincinnati, Ohio; Antioch, Tennessee and Dallas, Texas. The other former retail store was located in Colonial Heights, Virginia and was closed during the year. The Company received proceeds of $25.1 million relative to these sales which resulted in a net gain of $12.3 million. The gain was recorded in gain on disposal of assets.

### Fiscal 2011

During fiscal 2011, the Company received proceeds of $10.3 million from the sale of two former retail store locations located in West Palm Beach, Florida and Las Vegas, Nevada, resulting in gains totaling $1.3 million. Additionally, the Company received proceeds of $11.0 million from the sale of an interest in a mall joint venture, resulting in a gain of $2.1 million.

### Fiscal 2010

During fiscal 2010, the Company sold three vacant retail store properties located in Austin, Texas; Macon, Georgia and Chesapeake, Virginia for $7.3 million, resulting in a $3.1 million net gain. The Company also sold two retail store properties located in Coral Springs, Florida and Miami, Florida for $10.0 million, resulting in a $2.0 million gain.

### Asset Impairment and Store Closing Charges

*(in thousands of dollars)*

| Asset impairment and store closing charges: | Fiscal 2012 | Fiscal 2011 | Fiscal 2010 |
| --- | ---: | ---: | ---: |
| Retail operations segment | $1,591 | $1,200 | $2,208 |
| Construction segment | — | — | — |
| Total asset impairment and store closing charges | $1,591 | $1,200 | $2,208 |

### Fiscal 2012

Asset impairment and store closing charges for fiscal 2012 consisted of the write-down of a property held for sale and of an operating property, both of which the Company has currently contracted to sell.

### Fiscal 2011

Asset impairment and store closing charges for fiscal 2011 consisted of the write-down of a property held for sale.

### Fiscal 2010

Asset impairment and store closing charges for fiscal 2010 consisted of the write-down of one property held for sale.

### Income Taxes

The Company's estimated federal and state effective income tax rate, inclusive of income on (equity in losses of) joint ventures, was 30.2% in fiscal 2012, (15.6)% in fiscal 2011 and 32.0% in fiscal 2010. The Company expects the fiscal 2013 federal and state effective income tax rate to approximate 35%.

### Fiscal 2012

During fiscal 2012, income taxes included the recognition of tax benefits of approximately $19.7 million due to deductions for dividends paid to the Dillard's, Inc. Investment and Employee Stock Ownership Plan, $2.8 million related to federal tax credits, $1.2 million for the increase in the cash surrender value of life insurance policies, $1.8 million due to net decreases in unrecognized tax benefits, interest and penalties, $1.7 million for an amended return filed where capital gain income was offset by a previously unrecognized capital loss carryforward available in the amended return year, and $1.0 million related to decreases in valuation allowances related to state net operating loss carryforwards. The Company is currently under examination by various state and local taxing jurisdictions for various fiscal years. At this time, the Company does not expect the results from any income tax audit to have a material impact on the Company's financial statements.

### Fiscal 2011

In January 2011, the Company formed a wholly-owned subsidiary intended to operate as a real estate investment trust ("REIT") and transferred certain properties to this subsidiary. The Company entered into this transaction in order to enhance its financial flexibility by providing additional sources of liquidity. At the time, the Company believed that a tax election might be available to the Company that would result in a taxable gain on the transfer of these properties to the REIT. In May 2011, the Company requested that the IRS review the transaction and the potential tax election available to the Company, through the IRS's voluntary Pre-Filing Agreement Program ("PFA"). Through the PFA, in September 2011, the Company and the IRS entered into a Closing Agreement on Final Determination Covering Specific Matters under which the IRS agreed with the Company regarding the tax treatment of the transfer of the properties to the REIT and the availability of the tax election to the Company. Based on the agreement with the IRS reached during fiscal 2011, the Company determined to make the tax election in its tax return for the fiscal year ended January 29, 2011 (fiscal 2010). This tax election increased the tax basis of the properties transferred to the REIT to their fair values at the date of the transfer. The income tax that would otherwise be payable because of the gain recognized by this election was largely reduced by the utilization of a capital loss carryforward, that would otherwise have expired as of January 29, 2011, against a portion of the recognized gain. Because of the Company's past uncertainty regarding the incurrence of capital gain income, the deferred tax asset associated with that capital loss carryforward had been offset by a full valuation allowance since its recognition in fiscal 2005. During fiscal 2011, income taxes included the recognition of approximately $201.6 million in tax benefit due to the reversal of the valuation allowance related to the amount of the capital loss carryforward used to offset the capital gain income recognized on the taxable transfer of the properties to the REIT ("REIT Transaction"). Approximately $134.4 million of the tax benefit relates to increased basis in depreciable property while approximately $67.2 million of the benefit relates to increased basis in land. Due to the increased tax basis of the depreciable properties transferred to the REIT, the Company will recognize increased tax depreciation deductions in the future which are expected to yield cash tax benefits of approximately $5.0 million annually in years one through twenty and approximately $2.0 million annually in years twenty-one through forty beginning with the current year. Due to the uncertainty surrounding whether the REIT will dispose of any of its land assets in the future, the Company cannot estimate when or if the cash tax benefits related to the increased basis in land will be received.

During fiscal 2011, income taxes included the recognition of tax benefits of approximately $201.6 million due to the valuation allowance reversal related to the REIT Transaction, $3.7 million related to federal tax credits, $1.0 million for the increase in the cash surrender value of life insurance policies, $0.6 million due to net decreases in unrecognized tax benefits, interest and penalties, and $0.6 million related to decreases in net deferred tax liabilities resulting from legislatively-enacted state tax rate reductions. These tax benefits were partially offset by the recognition of tax expense of approximately $2.3 million due to increases in net operating loss valuation allowances. Additionally, during fiscal 2011, the IRS concluded its examination of the Company's federal income tax returns for the fiscal tax years 2008 through 2009, and no significant changes occurred in these tax years as a result of such examination.

### Fiscal 2010

During fiscal 2010, income taxes included approximately $1.4 million for an increase in deferred liabilities due to an increase in the state effective tax rate, and included the recognition of tax benefits of approximately $6.1 million for the net decrease in unrecognized tax benefits, interest, and penalties, $2.9 million for the decrease in net operating loss valuation allowances, $0.7 million for the decrease in the capital loss valuation allowance resulting from capital gain income, $1.2 million for the increase in the cash surrender value of life insurance policies, and $2.5 million due to federal tax credits. During fiscal 2010, the IRS completed its examination of the Company's federal income tax returns for the fiscal tax years 2006 and 2007, and no significant changes occurred in these tax years as a result of such examination. During fiscal 2010, the Company reached settlements with federal and state taxing jurisdictions which resulted in reductions in the liability for unrecognized tax benefits.

### LIQUIDITY AND CAPITAL RESOURCES

The Company's current non-operating priorities for its use of cash are stock repurchases, strategic investments to enhance the value of existing properties and dividend payments to shareholders.

Cash flows for the three fiscal years ended were as follows:

*(in thousands of dollars)*

|  | Fiscal 2012 | Fiscal 2011 | Fiscal 2010 | Percent Change 2012 - 2011 | 2011 - 2010 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Operating Activities | $522,703 | $501,140 | $512,922 | 4.3% | (2.3)% |
| Investing Activities | (105,709) | (83,224) | (89,615) | (27.0) | 7.1 |
| Financing Activities | (517,206) | (536,935) | (421,709) | 3.7 | (27.3) |
| Total Cash (Used) Provided | $(100,212) | $(119,019) | $1,598 |  |  |

34

### Operating Activities

The primary source of the Company's liquidity is cash flows from operations. Due to the seasonality of the Company's business, we have historically realized a significant portion of the cash flows from operating activities during the second half of the fiscal year. Retail operations sales are the key operating cash component, providing 96.1% and 96.7% of total revenues in fiscal 2012 and 2011, respectively.

Operating cash inflows also include revenue and reimbursements from the Alliance with GE, which owns and manages the Company's private label credit card business under the Alliance, and cash distributions from joint ventures. Operating cash outflows include payments to vendors for inventory, services and supplies, payments to employees and payments of interest and taxes.

The Alliance provides for certain payments to be made by GE to the Company, including a revenue sharing and marketing reimbursement. The Company received income of approximately $107 million and $96 million from GE in fiscal 2012 and 2011, respectively. While future cash flows under this Alliance are difficult to predict, the Company expects income from the Alliance to improve moderately during fiscal 2013 compared to fiscal 2012. The amount the Company receives is dependent on the level of sales on GE accounts, the level of balances carried on the GE accounts by GE customers, payment rates on GE accounts, finance charge rates and other fees on GE accounts, the level of credit losses for the GE accounts as well as GE's funding costs. The Alliance expires in fiscal 2014.

Net cash flows from operations increased $21.6 million during fiscal 2012 compared to fiscal 2011. This improvement is primarily attributable to an increase of $39.5 million related to changes in working capital items, primarily of a slower seasonal buildup of inventory and increases in trade accounts payable and accrued expenses. This increase was partially offset by lower net income, as adjusted for non-cash items, of $17.9 million for fiscal 2012 compared to fiscal 2011.

Included in net income for fiscal 2011 was a $44.5 million pretax gain ($28.7 million after tax or $0.53 per share), net of settlement related expenses, related to the settlement of a lawsuit with JDA Software Group for $57.0 million.

Included in net income for fiscal 2010 was a $7.5 million pretax gain ($4.8 million after tax or $0.07 per share) on proceeds received for final payment related to hurricane losses.

### Investing Activities

Cash inflows from investing activities generally include proceeds from sales of property and equipment. Investment cash outflows generally include payments for capital expenditures such as property and equipment.

Capital expenditures increased $21.0 million for fiscal 2012 compared to fiscal 2011. The fiscal 2012 expenditures of $136.6 million were primarily for the remodeling of existing stores, purchases of equipment, including the buyout of certain leased equipment, and completion of the Company's new internet fulfillment center located in Maumelle, Arkansas, which began processing merchandise during the first quarter of fiscal 2012. This new 850,000 square foot internet fulfillment center has replaced the Company's Nashville, Tennessee internet fulfillment center (285,000 square feet), which closed in July 2012.

Store closures during fiscal 2012 were:

| Closed Locations—Fiscal 2012 | City | Square Feet |
| --- | --- | ---: |
| Hutchinson Mall | Hutchinson, Kansas | 70,000 |
| Southpark Mall | Colonial Heights, Virginia | 85,000 |
| Total closed square footage |  | 155,000 |

We have also announced the upcoming closure of our Cache Valley Mall location in Logan, Utah (94,000 square feet). The store is expected to close during the first quarter of fiscal 2013 with minimal closing costs.

Capital expenditures for fiscal 2013 are expected to be approximately $175 million. These expenditures are primarily for the construction and remodeling of stores and the purchase of equipment. There are no planned store openings for fiscal 2013.

During fiscal 2012, 2011 and 2010, we received proceeds from the sale of property and equipment of $30.9 million, $18.9 million and $17.6 million, respectively, and recorded related gains of $12.4 million, $1.8 million and $5.6 million, respectively.

During fiscal 2010, the Company invested an additional $9.0 million in its Denver, Colorado mall joint venture. During fiscal 2011, the Company sold its interest in this joint venture for $11.0 million, resulting in a gain of $2.1 million that was recorded in gain on disposal of assets.

During fiscal 2011, the Company received a distribution of excess cash from a mall joint venture of $6.7 million and recorded a related gain of $4.2 million in income on (equity in losses of) joint ventures.

### Financing Activities

Our primary source of cash inflows from financing activities is generally our $1.0 billion revolving credit facility. Financing cash outflows generally include the repayment of borrowings under the revolving credit facility, the repayment of mortgage notes or long-term debt, the payment of dividends and the purchase of treasury stock.

Cash used in financing activities decreased to $517.2 million in fiscal 2012 from $536.9 million in fiscal 2011. This increase in cash flow of $19.7 million was primarily due to a reduction of treasury stock purchases partially offset by higher cash dividends paid and the purchase and retirement of common stock related to stock option exercises.

**Stock Repurchase.** In February 2012, the Company's Board of Directors authorized the Company to repurchase up to $250 million of the Company's Class A Common Stock under an open-ended plan ("2012 Stock Plan"). This authorization permits the Company to repurchase its Class A Common Stock in the open market, pursuant to preset trading plans meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934 ("Exchange Act") or through privately negotiated transactions. The 2012 Stock Plan has no expiration date. During fiscal 2012, the Company repurchased 2.4 million shares for $158.0 million at an average price of $66.39 per share. At February 2, 2013, $92.0 million of authorization remained under the 2012 Stock Plan.

In May 2011, the Company's Board of Directors authorized the Company to repurchase up to $250 million of the Company's Class A Common Stock under an open-ended plan ("May 2011 Stock Plan"). This authorization permitted the Company to repurchase its Class A Common Stock in the open market, pursuant to preset trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act or through privately negotiated transactions. During fiscal 2011, the Company repurchased 5.0 million shares for $222.5 million at an average price of $44.77 per share. During fiscal

2012, the Company repurchased 439 thousand shares for $27.5 million at an average price of $62.71 per share, which completed the authorization under the May 2011 Stock Plan.

In February 2011, the Company's Board of Directors authorized the Company to repurchase up to $250 million of the Company's Class A Common Stock ("February 2011 Stock Plan"). This authorization permitted the Company to repurchase its Class A Common Stock in the open market, pursuant to preset trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act or through privately negotiated transactions. During fiscal 2011, the Company repurchased 6.0 million shares for $250.0 million at an average price of $41.93 per share, which completed the authorization under the February 2011 Stock Plan.

In August 2010, the Company's Board of Directors authorized the Company to repurchase up to $250 million of the Company's Class A Common Stock ("2010 Stock Plan"). During fiscal 2010, the Company repurchased 7.5 million shares for $231.3 million at an average price of $31.04 per share. During fiscal 2011, the Company repurchased 0.4 million shares for $18.7 million at an average price of $42.19 per share, which completed the remaining authorization under the 2010 Stock Plan.

In November 2007, the Company's Board of Directors approved the repurchase of up to $200 million of the Company's Class A Common Stock ("2007 Stock Plan"). Availability under the 2007 Stock Plan at the beginning of fiscal 2010 was $182.6 million. During fiscal 2010, the Company repurchased 7.2 million shares of stock for approximately $182.6 million at an average price of $25.39 per share, which completed the remaining authorization under the 2007 Stock Plan.

The ultimate disposition of the repurchased stock has not been determined.

In March 2013, the Company completed the purchase of the $92.0 million outstanding at February 2, 2013 under the February 2012 plan. The Company also announced that the Board of Directors authorized the repurchase of up to an additional $250 million of its Class A Common Stock. This authorization permits the Company to repurchase its Class A Common Stock in the open market, pursuant to preset trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act or through privately negotiated transactions. The plan has no expiration date.

**Revolving Credit Agreement.** At February 2, 2013, the Company maintained a $1.0 billion revolving credit facility ("credit agreement") with JPMorgan Securities LLC ("JPMorgan") and Wells Fargo Capital Finance, LLC as the lead agents for various banks, secured by the inventory of Dillard's, Inc. operating subsidiaries. The credit agreement expires April 11, 2017.

Borrowings under the credit agreement accrue interest at either JPMorgan's Base Rate or LIBOR plus 1.5% (1.70% at February 2, 2013) subject to certain availability thresholds as defined in the credit agreement.

Limited to 90% of the inventory of certain Company subsidiaries, availability for borrowings and letter of credit obligations under the credit agreement was $871.5 million at February 2, 2013. No borrowings were outstanding at February 2, 2013. Letters of credit totaling $52.5 million were issued under this credit agreement leaving unutilized availability under the facility of approximately $819 million at February 2, 2013. There are no financial covenant requirements under the credit agreement provided that availability for borrowings and letters of credit exceeds $100 million. The Company pays an annual commitment fee to the banks of 0.375% of the committed amount less outstanding borrowings and letters of credit. The Company had weighted-average borrowings of $17.0 million and $72.6 million during fiscal 2012 and 2011, respectively.

Peak borrowings under the credit facility were approximately $149 million during fiscal 2012. Peak borrowings during fiscal 2013 are expected to be at similar levels as fiscal 2012.

**Long-term Debt.** At February 2, 2013, the Company had $614.8 million of long-term debt, comprised of unsecured notes. The unsecured notes bear interest at rates ranging from 6.625% to 7.875% with due dates from fiscal 2017 through fiscal 2028.

The Company reduced its net level of outstanding debt and capital leases during fiscal 2012 by $79.0 million compared to a reduction of $56.8 million in fiscal 2011, primarily due to the payment of regularly scheduled maturities of the unsecured notes, term note and mortgage principal.

In addition to paying the regularly scheduled maturities of the unsecured notes, term note and mortgage principal during fiscal 2011, the Company repurchased $5.7 million face amount of its 6.625% notes with an original maturity on January 15, 2018, resulting in a pretax gain of approximately $0.2 million which was recorded in net interest and debt expense.

The debt and capital lease decline of $17.5 million in fiscal 2010 was due to (1) regularly scheduled payments on the Company's term note and mortgage principal, (2) the payoff of $13 million in capital lease obligations for two corporate aircraft and (3) the repurchase of $1.2 million face amount of the Company's 7.13% notes with an original maturity on August 1, 2018.

There are no maturities of long-term debt during fiscal 2013 through fiscal 2016, and $87.2 million of long-term debt matures in fiscal 2017.

**Subordinated Debentures.** As of February 2, 2013, the Company had $200 million outstanding of its 7.5% subordinated debentures due August 1, 2038. All of these subordinated debentures were held by Dillard's Capital Trust I, a 100% owned, unconsolidated finance subsidiary of the Company. The Company has the right to defer the payment of interest on the subordinated debentures at any time for a period not to exceed 20 consecutive quarters; however, the Company has no present intention of exercising this right to defer interest payments.

### Fiscal 2013 Outlook

During fiscal 2013, the Company expects to finance its capital expenditures and its working capital requirements, including stock repurchases, from cash on hand, cash flows generated from operations and utilization of the credit facility. At present, there are numerous general business and economic factors impacting the retail industry that could affect the Company's liquidity. These factors include: consumer confidence; high levels of unemployment in various sectors; rising gas prices; economic instability around the globe; and other factors that are both separate from, and outgrowths of, these listed. These conditions could impact our net sales which may result in reduced cash flows if we are unable to appropriately manage our inventory levels and expenses. Depending upon our actual and anticipated sources and uses of liquidity, the Company will from time to time consider possible financing transactions, the proceeds of which could be used to refinance current indebtedness or for other corporate purposes.

### OFF-BALANCE-SHEET ARRANGEMENTS

The Company has not created, and is not party to, any special-purpose or off-balance-sheet entities for the purpose of raising capital, incurring debt or operating the Company's business. The Company does not have any off-balance-sheet arrangements or relationships that are reasonably likely to materially affect the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or the availability of capital resources.

### CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

To facilitate an understanding of the Company's contractual obligations and commercial commitments, the following data is provided:

### PAYMENTS DUE BY PERIOD

| (in thousands of dollars) Contractual Obligations | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Long-term debt | $614,785 | $— | $— | $87,201 | $527,584 |
| Interest on long-term debt | 476,918 | 44,507 | 89,014 | 89,553 | 253,844 |
| Subordinated debentures | 200,000 | — | — | — | 200,000 |
| Interest on subordinated debentures | 382,603 | 14,959 | 29,918 | 30,205 | 307,521 |
| Capital lease obligations, including interest | 12,859 | 2,488 | 2,856 | 2,856 | 4,659 |
| Benefit plan participant payments | 180,046 | 5,474 | 12,715 | 15,934 | 145,923 |
| Purchase obligations(1) | 1,274,459 | 1,274,459 | — | — | — |
| Operating leases(2) | 89,051 | 21,353 | 37,732 | 20,282 | 9,684 |
| Total contractual cash obligations(3)(4) | $3,230,721 | $1,363,240 | $172,235 | $246,031 | $1,449,215 |

(1)

The Company's purchase obligations principally consist of purchase orders for merchandise and store construction commitments. Amounts committed under open purchase orders for merchandise inventory represent $1,267.3 million of the purchase obligations, of which a significant portion are cancelable without penalty prior to a date that precedes the vendor's scheduled shipment date.

(2)

The operating leases included in the above table do not include contingent rent based upon sales volume, which represented approximately 15% of minimum lease obligations in fiscal 2012.

(3)

The total liability for unrecognized tax benefits is $6.8 million, including tax, penalty, and interest (refer to Note 6 to the consolidated financial statements). The Company is not able to reasonably estimate the timing of future cash flows and has excluded these liabilities from the table above; however, at this time, the Company does not expect a material change in unrecognized tax benefits in the next twelve months.

(4)

The Company is unable to reasonably estimate the timing of future cash flows of workers' compensation and general liability insurance reserves of $28.7 million, gift card liabilities of $15.3 million and other liabilities of $0.1 million and have excluded these from the table above.

### AMOUNT OF COMMITMENT EXPIRATION PER PERIOD

| (in thousands of dollars) Other Commercial Commitments | Total Amounts Committed | Within 1 year | 2 - 3 years | 4 - 5 years | After 5 years |
| --- | ---: | ---: | ---: | ---: | ---: |
| $1.0 billion line of credit, none outstanding(1) | $— | $— | $— | $— | $— |
| Standby letters of credit | 47,625 | 43,775 | 3,850 | — | — |
| Import letters of credit | 4,837 | 4,837 | — | — | — |
| Total commercial commitments | $52,462 | $48,612 | $3,850 | $— | $— |

(1)

Availability under the credit facility is limited to 90% of the inventory of certain Company subsidiaries (approximately $872 million at February 2, 2013). At February 2, 2013, letters of credit totaling $52.5 million were issued under the credit facility.

### NEW ACCOUNTING PRONOUNCEMENTS

#### Fair Value Measurements and Disclosure

In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-04, *Fair Value Measurement (Topic 820)—Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs*. The amendments in this update change the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS. This update was effective for interim and annual periods beginning after December 15, 2011 and was to be applied prospectively. The adoption of this standard did not have a significant impact on the Company's financial statements.

#### Presentation of Comprehensive Income

In June 2011, the FASB issued ASU No. 2011-05, *Comprehensive Income (Topic 220)—Presentation of Comprehensive Income*, to make the presentation of items within other comprehensive income ("OCI") more prominent. The new standard requires companies to present items of net income, items of OCI and total comprehensive income in one continuous statement or two separate consecutive statements, and companies will no longer be allowed to present items of OCI solely in the statement of stockholders' equity. This new update was effective for interim and annual periods beginning after December 15, 2011 and was applied retrospectively. The adoption of this standard changed the order and placement where certain financial statement items are presented but did not have any other impact on the Company's financial statements.

In February 2013, the FASB issued ASU No. 2013-06, *Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income*, which requires the Company to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income on the Company's consolidated statement of comprehensive income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. This update does not change the current requirements for reporting net income or other comprehensive income in the consolidated financial statements of the Company, but does require the Company to provide information about the amounts reclassified out of accumulated other comprehensive income by component. The provisions in this update are effective prospectively beginning with the Company's first quarter of 2013, with early adoption permitted. The adoption of this update affects the format and presentation of its consolidated financial statements and the footnotes to the consolidated financial statements but will not have any other impact on the Company's financial statements.

### FORWARD-LOOKING INFORMATION

This report contains certain forward-looking statements. The following are or may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995: (a) statements including words such as "may," "will," "could," "believe," "expect," "future," "potential," "anticipate," "intend," "plan," "estimate," "continue," or the negative or other variations thereof; (b) statements regarding matters that are not historical facts; and (c) statements about the Company's future occurrences, plans and objectives, including statements regarding management's expectations and forecasts for fiscal 2013. The Company cautions that forward-looking statements contained in this report are based on estimates, projections, beliefs and assumptions of management and information available to management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise. Forward-looking statements of the Company involve risks and uncertainties and are subject to change based on various important factors. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of risks, uncertainties and assumptions. Representative examples of those factors include (without limitation) general retail industry conditions and macro-economic conditions; economic and weather conditions for regions in which the Company's stores are located and the effect of these factors on the buying patterns of the Company's customers, including the effect of changes in prices and availability of oil and natural gas; the availability of consumer credit; the impact of competitive pressures in the department store industry and other retail channels including specialty, off-price, discount and Internet retailers; changes in consumer spending patterns, debt levels and their ability to meet credit obligations; changes in legislation, affecting such matters as the cost of employee benefits or credit card income; adequate and stable availability of materials, production facilities and labor from which the Company sources its merchandise at acceptable pricing; changes in operating expenses, including employee wages, commission structures and related benefits; system failures or data security breaches; possible future acquisitions of store properties from other department store operators; the continued availability of financing in amounts and at the terms necessary to support the Company's future business; fluctuations in LIBOR and other base borrowing rates; potential disruption from terrorist activity and the effect on ongoing consumer confidence; epidemic, pandemic or other public health issues; potential disruption of international trade and supply chain efficiencies; world conflict and the possible impact on consumer spending patterns and other economic and demographic changes of similar or dissimilar nature, and other risks and uncertainties, including those detailed from time to time in our periodic reports filed with the Securities and Exchange Commission, particularly those set forth under the caption "Item 1A, Risk Factors" in this Form 10-K.

## Market risk

As filed, 1,314 characters.

The table below provides information about the Company's obligations that are sensitive to changes in interest rates. The table presents maturities of the Company's long-term debt and subordinated debentures along with the related weighted-average interest rates by expected maturity dates.

| (in thousands of dollars) Expected Maturity Date (fiscal year) | 2013 | 2014 | 2015 | 2016 | 2017 | Thereafter | Total | Fair Value |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Long-term debt | $— | $— | $— | $— | $87,201 | $527,584 | $614,785 | $671,738 |
| Average fixed interest rate | —% | —% | —% | —% | 6.6% | 7.3% | 7.3% |  |
| Subordinated debentures | $— | $— | $— | $— | $— | $200,000 | $200,000 | $204,160 |
| Average interest rate | —% | —% | —% | —% | —% | 7.5% | 7.5% |  |

The Company is exposed to market risk from changes in the interest rates under its $1.0 billion revolving credit facility. Outstanding balances under this facility bear interest at a variable rate based on JPMorgan's Base Rate or LIBOR plus 1.5%. The Company had weighted average borrowings of $17.0 million during fiscal 2012. Based on the average amount outstanding during fiscal 2012, a 100 basis point change in interest rates would result in an approximate $0.2 million annual change to interest expense.

## Controls and procedures

As filed, 2,020 characters.

#### Evaluation of Disclosure Controls and Procedures

The Company has established and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). The Company's management, with the participation of our CEO and CFO, has evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the fiscal year covered by this annual report, and based on that evaluation, the Company's CEO and CFO have concluded that these disclosure controls and procedures were effective.

#### Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in *Internal Control—Integrated Framework* issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in *Internal Control—Integrated Framework*, our management concluded that our internal control over financial reporting was effective as of February 2, 2013.

Our independent registered public accounting firm, KPMG LLP ("KPMG"), has audited our Consolidated Financial Statements included in this Annual Report on Form 10-K and has issued a report on the effectiveness of our internal control over financial reporting as of February 2, 2013. Please refer to KPMG's "Report of Independent Registered Public Accounting Firm" on page F-2 of this Annual Report on Form 10-K.

#### Changes in Internal Controls

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended February 2, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Filed Mar 28, 2013.
Source: SEC EDGAR, the filing index for accession 0001047469-13-003588. Last ingested by Listed: Oct 27, 2026, 18:21 ET. No prices; not investment advice.