Dillard's 2012 Annual Report Download - page 39

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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, 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.
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