Dillard's 2008 Annual Report Download - page 36

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Operating Activities
The primary source of the Company’s liquidity is cash flows from operations. Due to the seasonality of the
Company’s business, it has 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
96.5% and 97.8% of total revenues in fiscal 2008 and 2007, respectively.
Operating cash inflows also include revenue and reimbursements from the long-term marketing and
servicing alliance (“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 $110 million and $119 million
from GE in fiscal 2008 and 2007. While future cash flows under this Alliance are difficult to predict, the
Company expects the 2009 amounts to be reduced from current year levels due to the challenging economy. 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 $95.6 million during fiscal 2008 compared to fiscal 2007. This
increase is primarily attributable to an increase of $292.5 million related to changes in working capital items,
primarily of changes in inventory as the Company worked to control inventory levels, including a 9% decrease in
purchases over the prior year, and of changes in accounts payable. This increase was partially offset by lower net
income, as adjusted for non-cash items, of $191.0 million in fiscal 2008 compared to the prior year.
We received insurance proceeds of $5.9 million during fiscal 2007 related to inventory damages incurred
during the 2005 hurricane season. Combined with the hurricane insurance proceeds recorded in investing
activities, the Company recorded related gains in fiscal 2007 of $14.1 million and $4.1 million in gain on
disposal of assets and cost of sales, respectively.
Investing Activities
Cash inflows from investing activities generally include proceeds from sales of property and equipment and
joint ventures. Investment cash outflows generally include payments for capital expenditures such as property
and equipment.
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