Dillard's 2012 Annual Report Download - page 14

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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.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
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.
10