DDS 10-Q Quarterly Report Nov. 2, 2013 | Alphaminr
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10-Q 1 dds-11022013x10q.htm 10-Q DDS-11.02.2013-10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 2, 2013
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission File Number:  1-6140

DILLARD’S, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
71-0388071
(State or other jurisdiction
(I.R.S. Employer
of incorporation or organization)
Identification No.)
1600 CANTRELL ROAD, LITTLE ROCK, ARKANSAS  72201
(Address of principal executive offices)
(Zip Code)
(501) 376-5200
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
CLASS A COMMON STOCK as of November 30, 2013 39,915,195
CLASS B COMMON STOCK as of November 30, 2013 4,010,929




Index
DILLARD’S, INC.
Page
Number


2

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements
DILLARD’S, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
November 2,
2013
February 2,
2013
October 27,
2012
Assets



Current assets:



Cash and cash equivalents
$
110,972

$
124,060

$
124,794

Accounts receivable
31,710

31,519

30,755

Merchandise inventories
1,829,198

1,294,581

1,722,443

Other current assets
65,664

41,820

66,594

Total current assets
2,037,544

1,491,980

1,944,586

Property and equipment (net of accumulated depreciation and amortization of $2,353,194, $2,167,477 and $2,411,756)
2,164,545

2,287,015

2,345,908

Other assets
257,826

269,749

268,873

Total assets
$
4,459,915

$
4,048,744

$
4,559,367

Liabilities and stockholders’ equity



Current liabilities:



Trade accounts payable and accrued expenses
$
1,035,827

$
653,769

$
1,028,163

Current portion of long-term debt
—

—

260

Current portion of capital lease obligations
770

1,710

2,099

Other short-term borrowings
170,000

—

27,000

Federal and state income taxes including current deferred taxes
91,848

111,637

79,989

Total current liabilities
1,298,445

767,116

1,137,511

Long-term debt
614,785

614,785

614,785

Capital lease obligations
6,957

7,524

7,705

Other liabilities
230,858

233,492

247,633

Deferred income taxes
236,300

255,652

282,319

Subordinated debentures
200,000

200,000

200,000

Commitments and contingencies
—

—

—

Stockholders’ equity:



Common stock
1,237

1,237

1,228

Additional paid-in capital
933,264

932,495

838,264

Accumulated other comprehensive loss
(25,305
)
(31,275
)
(36,280
)
Retained earnings
3,296,788

3,099,566

3,274,629

Less treasury stock, at cost
(2,333,414
)
(2,031,848
)
(2,008,427
)
Total stockholders’ equity
1,872,570

1,970,175

2,069,414

Total liabilities and stockholders’ equity
$
4,459,915

$
4,048,744

$
4,559,367

See notes to condensed consolidated financial statements.


3

DILLARD’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
(In Thousands, Except Per Share Data)
Three Months Ended
Nine Months Ended
November 2,
2013
October 27,
2012
November 2,
2013
October 27,
2012
Net sales
$
1,468,612

$
1,449,623

$
4,497,600

$
4,486,867

Service charges and other income
38,313

36,722

115,502

110,672

1,506,925

1,486,345

4,613,102

4,597,539

Cost of sales
937,407

919,623

2,852,014

2,864,338

Selling, general and administrative expenses
404,406

404,637

1,192,820

1,196,663

Depreciation and amortization
64,942

65,798

194,302

194,033

Rentals
5,946

7,624

17,049

24,530

Interest and debt expense, net
15,789

17,011

48,345

52,139

Gain on disposal of assets
(2
)
(1,072
)
(12,371
)
(2,211
)
Asset impairment and store closing charges
—

—

6,527

—



Income before income taxes and income on and equity in losses of joint ventures
78,437

72,724

314,416

268,047

Income taxes
27,570

24,231

110,665

94,531

Income on and equity in losses of joint ventures
1

21

818

1,003

Net income
50,868

48,514

204,569

174,519

Retained earnings at beginning of period
3,248,620

3,228,474

3,099,566

3,107,344

Cash dividends declared
(2,700
)
(2,359
)
(7,347
)
(7,234
)
Retained earnings at end of period
$
3,296,788

$
3,274,629

$
3,296,788

$
3,274,629

Earnings per share:




Basic
$
1.13

$
1.03

$
4.43

$
3.62

Diluted
$
1.13

$
1.01

$
4.43

$
3.55

Cash dividends declared per common share
$
0.06

$
0.05

$
0.16

$
0.15

See notes to condensed consolidated financial statements.

4

DILLARD’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In Thousands)
Three Months Ended
Nine Months Ended
November 2,
2013
October 27,
2012
November 2,
2013
October 27,
2012
Net income
$
50,868

$
48,514

$
204,569

$
174,519

Other comprehensive income:




Amortization of retirement plan and other retiree benefit adjustments (net of tax of $297, $522, $3,692 and $1,566)
480

918

5,970

2,754

Comprehensive income
$
51,348

$
49,432

$
210,539

$
177,273

See notes to condensed consolidated financial statements.


5

DILLARD’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Nine Months Ended
November 2,
2013
October 27,
2012
Operating activities:


Net income
$
204,569

$
174,519

Adjustments to reconcile net income to net cash provided by operating activities:


Depreciation and amortization of property and deferred financing costs
195,664

195,489

Gain on disposal of assets
(12,371
)
(2,211
)
Excess tax benefits from share-based compensation
—

(2,376
)
Asset impairment and store closing charges
6,527

—

Changes in operating assets and liabilities:


Increase i n accounts receivable
(191
)
(2,047
)
Increase in merchandise inventories
(534,617
)
(418,319
)
Increase in other current assets
(23,075
)
(31,969
)
Decrease in other assets
2,643

9,264

Increase i n trade accounts payable and accrued expenses and other liabilities
372,994

383,047

Decrease i n income taxes payable
(39,141
)
(85,524
)
Net cash provided by operating activities
173,002

219,873

Investing activities:


Purchases of property and equipment
(65,295
)
(111,910
)
Proceeds from disposal of assets
18,279

11,978

Net cash used in investing activities
(47,016
)
(99,932
)
Financing activities:


Principal payments on long-term debt and capital lease obligations
(1,507
)
(78,190
)
Issuance cost of line of credit
(1,354
)
(5,373
)
Increase in short-term borrowings
170,000

27,000

Cash dividends paid
(4,647
)
(7,364
)
Purchase of treasury stock
(301,566
)
(162,115
)
Proceeds from stock issuance
—

4,247

Excess tax benefits from share-based compensation
—

2,376

Net cash used in financing activities
(139,074
)
(219,419
)
Decrease in cash and cash equivalents
(13,088
)
(99,478
)
Cash and cash equivalents, beginning of period
124,060

224,272

Cash and cash equivalents, end of period
$
110,972

$
124,794

Non-cash transactions:


Accrued capital expenditures
$
9,700

$
4,900

Stock awards
769

2,848

See notes to condensed consolidated financial statements.

6

DILLARD’S, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1. Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements of Dillard’s, Inc. (the “Company”) have been prepared in accordance with the rules of the Securities and Exchange Commission (“SEC”).  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three and nine months ended November 2, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending February 1, 2014 due to the seasonal nature of the business.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2013 filed with the SEC on March 28, 2013.
Note 2.  Business Segments
The Company operates in two reportable segments:  the operation of retail department stores (“retail operations”) and a general contracting construction company (“construction”).
For the Company’s retail operations, the Company determined its operating segments on a store by store basis.  Each store’s operating performance has been aggregated into one reportable segment.  The Company’s operating segments are aggregated for financial reporting purposes because they are similar in each of the following areas: economic characteristics, class of consumer, nature of products and distribution methods. Revenues from external customers are derived from merchandise sales, and the Company does not rely on any major customers as a source of revenue. Across all stores, the Company operates one store format under the Dillard’s name where each store offers the same general mix of merchandise with similar categories and similar customers.  The Company believes that disaggregating its operating segments would not provide meaningful additional information.


7

The following tables summarize certain segment information, including the reconciliation of those items to the Company’s consolidated operations:
(in thousands of dollars)

Retail
Operations

Construction

Consolidated
Three Months Ended November 2, 2013:




Net sales from external customers
$
1,437,492

$
31,120


$
1,468,612

Gross profit
529,453

1,752


531,205

Depreciation and amortization
64,878

64


64,942

Interest and debt expense (income), net
15,806

(17
)

15,789

Income before income taxes and income on and equity in losses of joint ventures
78,040

397


78,437

Income on and equity in losses of joint ventures
1

—


1

Total assets
4,420,445

39,470


4,459,915

Three Months Ended October 27, 2012:



Net sales from external customers
$
1,424,722

$
24,901


$
1,449,623

Gross profit
528,971

1,029


530,000

Depreciation and amortization
65,742

56


65,798

Interest and debt expense (income), net
17,042

(31
)

17,011

Income (loss) before income taxes and income on and equity in losses of joint ventures
72,760

(36
)

72,724

Income on and equity in losses of joint ventures
21

—


21

Total assets
4,514,849

44,518


4,559,367

Nine Months Ended November 2, 2013:



Net sales from external customers
$
4,426,270

$
71,330


$
4,497,600

Gross profit
1,640,759

4,827


1,645,586

Depreciation and amortization
194,121

181


194,302

Interest and debt expense (income), net
48,398

(53
)

48,345

Income before income taxes and income on and equity in losses of joint ventures
313,221

1,195


314,416

Income on and equity in losses of joint ventures
818

—


818

Total assets
4,420,445

39,470


4,459,915

Nine Months Ended October 27, 2012:



Net sales from external customers
$
4,402,721

$
84,146


$
4,486,867

Gross profit
1,618,751

3,778


1,622,529

Depreciation and amortization
193,881

152


194,033

Interest and debt expense (income), net
52,241

(102
)

52,139

Income before income taxes and income on and equity in losses of joint ventures
267,756

291


268,047

Income on and equity in losses of joint ventures
1,003

—


1,003

Total assets
4,514,849

44,518


4,559,367

Intersegment construction revenues of $9.2 million and $21.5 million for the three and nine months ended November 2, 2013 , respectively, and intersegment construction revenues of $10.5 million and $28.3 million for the three and nine months ended October 27, 2012 , respectively, were eliminated during consolidation and have been excluded from net sales for the respective periods.
Note 3.  Stock-Based Compensation
The Company has various stock option plans that provide for the granting of options to purchase shares of Class A Common Stock to certain key employees of the Company.  Exercise and vesting terms for options granted under the plans are determined

8

at each grant date. No stock options were granted during the three and nine months ended November 2, 2013 and October 27, 2012 , and no stock options were outstanding at November 2, 2013 .  The intrinsic value of stock options exercised during the three months ended October 27, 2012 was $1.0 million .

Note 4.  Asset Impairment and Store Closing Charges
There were no asset impairment and store closing charges recorded during the three months ended November 2, 2013 and the three and nine months ended October 27, 2012 .
During the nine months ended November 2, 2013 , the Company recorded a pretax charge of $6.5 million for asset impairment and store closing costs.  The charge was for the write-down of an operating property and certain cost method investments.
Following is a summary of the activity in the reserve established for store closing charges for the nine months ended November 2, 2013 :
(in thousands)
Balance
Beginning
of Period
Adjustments
and Charges*
Cash Payments
Balance
End of Period
Rent, property taxes and utilities
$
251

$
142

$
328

$
65

________________________________
* included in rentals
Reserve amounts are included in trade accounts payable and accrued expenses and other liabilities.
Note 5. Earnings Per Share Data
The following table sets forth the computation of basic and diluted earnings per share for the periods indicated (in thousands, except per share data).
Three Months Ended
Nine Months Ended
November 2,
2013
October 27,
2012
November 2,
2013
October 27,
2012
Basic:




Net income
$
50,868

$
48,514

$
204,569

$
174,519

Weighted average shares of common stock outstanding
45,155

47,127

46,139

48,265

Basic earnings per share
$
1.13

$
1.03

$
4.43

$
3.62

Three Months Ended
Nine Months Ended
November 2,
2013
October 27,
2012
November 2,
2013
October 27,
2012
Diluted:




Net income
$
50,868

$
48,514

$
204,569

$
174,519

Weighted average shares of common stock outstanding
45,155

47,127

46,139

48,265

Dilutive effect of stock-based compensation
—

978

—

951

Total weighted average equivalent shares
45,155

48,105

46,139

49,216

Diluted earnings per share
$
1.13

$
1.01

$
4.43

$
3.55

No stock options were outstanding at November 2, 2013 , and total stock options outstanding were 2,080,000 at October 27, 2012 .

9

Note 6.  Commitments and Contingencies
Various legal proceedings, in the form of lawsuits and claims, which occur in the normal course of business, are pending against the Company and its subsidiaries.  In the opinion of management, disposition of these matters is not expected to have a material adverse effect on the Company’s financial position, cash flows or results of operations.
At November 2, 2013 , letters of credit totaling $46.8 million were issued under the Company’s revolving credit facility.

Note 7.  Benefit Plans
The Company has an unfunded, nonqualified defined benefit plan (“Pension Plan”) for its officers.  The Pension Plan is noncontributory and provides benefits based on years of service and compensation during employment.  Pension expense is determined using various actuarial cost methods to estimate the total benefits ultimately payable to officers and allocates this cost to service periods.  The actuarial assumptions used to calculate pension costs are reviewed annually.  The Company made contributions to the Pension Plan of $0.7 million and $2.1 million during the three and nine months ended November 2, 2013 , respectively.  The Company expects to make contributions to the Pension Plan of approximately $0.7 million for the remainder of fiscal 2013 .
The components of net periodic benefit costs are as follows (in thousands):
Three Months Ended
Nine Months Ended
November 2,
2013
October 27,
2012
November 2,
2013
October 27,
2012
Components of net periodic benefit costs:




Service cost
$
1,059

$
817

$
3,178

$
2,450

Interest cost
1,696

1,823

5,086

5,470

Net actuarial loss
753

1,283

2,259

3,849

Amortization of prior service cost
24

157

72

470

Plan curtailment gain
—

—

(1,480
)
—

Net periodic benefit costs
$
3,532

$
4,080

$
9,115

$
12,239

Net periodic benefit costs are included in selling, general and administrative expenses.
Note 8.  Revolving Credit Agreement
At November 2, 2013 , the Company maintained a $1.0 billion revolving credit facility (“credit agreement”) with J. P. Morgan 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 July 1, 2018.
Borrowings under the credit agreement accrue interest at either JPMorgan’s Base Rate or LIBOR plus 1.5% ( 1.67% at November 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 $1.0 billion at November 2, 2013 .  Borrowings of $170.0 million were outstanding at November 2, 2013 .  Letters of credit totaling $46.8 million were issued under this credit agreement leaving unutilized availability under the facility of approximately $783 million at November 2, 2013 .  There are no financial covenant requirements under the credit agreement provided availability exceeds $100 million .  The Company pays an annual commitment fee to the banks of 0.25% of the committed amount less outstanding borrowings and letters of credit.
Note 9.  Stock Repurchase Programs
All repurchases of the Company’s Class A Common Stock below were made at the market price at the trade date.  Accordingly, all amounts paid to reacquire these shares were allocated to Treasury Stock.

10

March 2013 Stock Plan
In March 2013, the Company’s Board of Directors authorized the repurchase of up to $250 million of the Company’s Class A Common Stock under an open-ended stock plan (“March 2013 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.  During the three and nine months ended November 2, 2013, the Company repurchased 2.4 million shares and 2.7 million shares for $186.9 million and $209.6 million at an average price of $77.80 per share and $77.93 per share, respectively.  At November 2, 2013, $40.4 million of authorization remained under the March 2013 Stock Plan.

2012 Stock Plan
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 stock plan (“2012 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 the nine months ended October 27, 2012, the Company repurchased 2.1 million shares for $134.6 million at an average price of $64.52 per share.  During the nine months ended November 2, 2013, the Company repurchased 1.2 million shares for $92.0 million at an average price of $79.14 per share, which completed the authorization under the 2012 Stock Plan.
May 2011 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 stock 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 the nine months ended October 27, 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.
Note 10.  Income Taxes
During the three months ended November 2, 2013 , income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes partially offset by tax benefits recognized for federal tax credits.  During the three months ended October 27, 2012 , income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes offset by a tax benefit recognized for an amended return filed where capital gain income was offset by a previously unrecognized capital loss carryforward available in the amended return year.
During the nine months ended November 2, 2013 , income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes partially offset by tax benefits recognized for federal tax credits.  During the nine months ended October 27, 2012 , income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes partially offset by tax benefits recognized for: (i) an amended return filed where capital gain income was offset by a previously unrecognized capital loss carryforward available in the amended return year and (ii) net decreases in unrecognized tax benefits primarily related to statute lapses.

The Company is currently under examination by the IRS for the fiscal tax year 2011. At this time, the Company does not expect the results from this audit to have a material impact on the Company’s consolidated financial statements.


11

Note 11. Reclassifications from Accumulated Other Comprehensive Loss (“AOCL”)
Reclassifications from AOCL are summarized as follows (in thousands):
Amount
Reclassified
from AOCL
Three Months Ended
Nine Months Ended
Affected Line Item in the Statement Where Net Income Is Presented
Details about AOCL Components
November 2, 2013
November 2, 2013
Defined benefit pension plan items


Amortization of prior service cost
$
24

$
72

(1)
Amortization of actuarial losses
753

2,259

(1)
Plan curtailment gain
—

7,331

(2)
777

9,662

Total before tax
297

3,692

Income tax expense
$
480

$
5,970

Total net of tax
_______________________________
(1) These items are included in the computation of net periodic pension cost.  See Note 7, Benefit Plans , for additional information.
(2) The excess of the pension liability for the curtailed plan over the amount shown here is included in the computation of net periodic pension cost.  See Note 7, Benefit Plans , for additional information.
Note 12. Changes in Accumulated Other Comprehensive Loss
Changes in AOCL by component (net of tax) are summarized as follows (in thousands):
Defined Benefit
Pension Plan Items
Three Months Ended
Nine Months Ended
November 2, 2013
November 2, 2013
Beginning balance
$
25,785

$
31,275

Other comprehensive income before reclassifications
—

—

Amounts reclassified from AOCL
(480
)
(5,970
)
Net other comprehensive income
(480
)
(5,970
)
Ending balance
$
25,305

$
25,305

Note 13.  Gain on Disposal of Assets
During the nine months ended November 2, 2013, the Company received proceeds of $15.7 million from the sale of its investment in Acumen Brands, an eCommerce company based in Fayetteville, Arkansas.  The sale resulted in a gain of $11.7 million that was recorded in gain on disposal of assets.
During the nine months ended November 2, 2013, the Company also received proceeds of $1.7 million from the sale of two former retail stores located in Oklahoma City, Oklahoma and Pasadena, Texas that were held for sale, resulting in a gain of $0.6 million that was recorded in gain on disposal of assets.

During the three months ended October 27, 2012, the Company received proceeds of $4.1 million from the sales of two former retail stores: one location was in Charlotte, North Carolina and was held for sale and the other location was in Colonial Heights, Virginia, which was closed during the period. The sales resulted in a net gain of $1.1 million that was recorded in gain on disposal of assets.

12

Additionally, during the nine months ended October 27, 2012, the Company received proceeds of $7.8 million from the sales of two former retail stores located in Cincinnati, Ohio and Antioch, Tennessee that were held for sale and one building that was formerly a portion of a currently operating retail location, resulting in a net gain of $0.9 million that was recorded in gain on disposal of assets.

Note 14.  Fair Value Disclosures
The estimated fair values of financial instruments which are presented herein have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of amounts the Company could realize in a current market exchange.
The fair value of the Company’s long-term debt and subordinated debentures is based on market prices or dealer quotes.
The fair value of the Company’s cash and cash equivalents, accounts receivable and other short-term borrowings approximates their carrying values at November 2, 2013 due to the short-term maturities of these instruments.  The fair value of the Company’s long-term debt at November 2, 2013 was approximately $680 million .  The carrying value of the Company’s long-term debt at November 2, 2013 was $615 million .  The fair value of the Company’s subordinated debentures at November 2, 2013 was approximately $202 million .  The carrying value of the Company’s subordinated debentures at November 2, 2013 was $200 million .
During the nine months ended November 2, 2013, the Company recognized an impairment charge of $5.4 million on certain cost method investments.  The Company evaluated all factors and determined that an other-than-temporary impairment charge was necessary.  These investments are recorded in other assets on the balance sheet.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The FASB’s accounting guidance utilizes a fair value hierarchy that prioritizes the inputs to the valuation techniques used to measure fair value into three broad levels:
•
Level 1:  Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities
• Level 2:  Inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active
•
Level 3:  Unobservable inputs that reflect the reporting entity’s own assumptions
Basis of Fair Value Measurements
Fair Value
of Assets
Quoted Prices In Active
Markets for
Identical Items
Significant Other
Observable
Inputs
Significant
Unobservable
Inputs
(in thousands)
(Liabilities)
(Level 1)
(Level 2)
(Level 3)
Long-lived assets held for use
As of November 2, 2013
$
3,000

$
—

$
3,000

$
—

Long-lived assets held for use
During the nine months ended November 2, 2013, an additional long-lived asset group held for use was written down to its fair value of $3.0 million , resulting in an impairment charge of $1.2 million , which was included in earnings for the period.  The inputs used to calculate the fair value of these long-lived assets held for use were based upon an offer to purchase the property.




13

Note 15.  Recently Issued Accounting Standards
Presentation of Comprehensive Income
In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, 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 were effective prospectively beginning with the Company’s first quarter of 2013. The adoption of this update affected the format and presentation of the Company’s consolidated financial statements and the footnotes thereto but did not have any other impact on the Company’s financial statements.
Guidance on Financial Statement Presentation of Unrecognized Tax Benefit
In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists , which provides explicit presentation guidelines.  Under this ASU, an unrecognized tax benefit, or portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward except when specific conditions are met as outlined in the ASU.  When these specific conditions are met, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.  This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, and should be applied prospectively to all unrecognized tax benefits that exist at the effective date.  The adoption of this update is not expected to have a material impact on the Company's consolidated financial statements.

14

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the condensed consolidated financial statements and the footnotes thereto included elsewhere in this report, as well as the financial and other information included in our Annual Report on Form 10-K for the year ended February 2, 2013.
EXECUTIVE OVERVIEW
During the third quarter of fiscal 2013, Dillard’s improved its bottom line over last year's third quarter performance.  Comparable store sales were up (for the thirteenth consecutive quarter), and selling, general and administrative expenses improved 40 basis points of sales. Despite a 30 basis point decline in gross margin from retail operations, net income increased to $50.9 million from $48.5 million. This improvement in net income aided by $186.9 million of share repurchases during the current year third quarter helped raise earnings per share to $1.13 per share from $1.01 per share for the third quarter of last year.
Included in net income for the prior year third quarter ended October 27, 2012 are:

•
a $1.1 million pretax gain ($0.7 million after tax or $0.01 per share) related to the sale of two former retail store locations and
•
a $1.7 million tax benefit ($0.04 per share) due to a reversal of a valuation allowance related to a deferred tax asset consisting of a capital loss carryforward.

Highlights of the quarter ended November 2, 2013 as compared to the quarter ended October 27, 2012 included:
•
a 1% increase in comparable store sales,
•
a decrease in selling, general and administrative expenses of 40 basis points of sales,
•
the repurchase of $186.9 million (2.4 million shares) of our Class A Common Stock and
•
an increase in earnings per share to $1.13 per share from $1.01 per share.
As of November 2, 2013, we had working capital of $739.1 million, cash and cash equivalents of $111.0 million and $984.8 million of total debt outstanding, excluding capital lease obligations.  Cash flows from operating activities were $173.0 million for the nine months ended November 2, 2013.  We operated 299 total stores, including 17 clearance centers, and one internet store as of November 2, 2013, a decrease of three 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 our business, including the following:
Three Months Ended
November 2,
2013
October 27,
2012
Net sales (in millions)
$
1,468.6

$
1,449.6

Retail stores sales trend
1
%
4
%
Comparable retail stores sales trend
1
%
5
%
Gross profit (in millions)
$
531.2

$
530.0

Gross profit as a percentage of net sales
36.2
%
36.6
%
Retail gross profit as a percentage of net sales
36.8
%
37.1
%
Selling, general and administrative expenses as a percentage of net sales
27.5
%
27.9
%
Cash flow from operations (in millions)*
$
173.0

$
219.9

Total retail store count at end of period
299

302

Retail sales per square foot
$
29

$
28

Comparable retail store inventory trend
6
%
(1
)%
Retail merchandise inventory turnover
2.4

2.5

_______________________________
*Cash flow from operations data is for the nine months ended November 2, 2013 and October 27, 2012 .

15


General
Net sales . Net sales include merchandise sales of comparable and non-comparable stores and revenue recognized on contracts of CDI Contractors, LLC (“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 long-term marketing and servicing alliance (“Alliance”) with GE Consumer Finance (“GE”), which owns and manages the Dillard’s branded proprietary cards.  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 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 investment.
Asset impairment and store closing charges . Asset impairment and store closing charges consist of (a) write-downs to fair value of under-performing or held for sale properties and of cost method investments and (b) 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 and equity in losses of joint ventures .  Income on and equity in losses of joint ventures includes the Company’s portion of the income or loss of the Company’s unconsolidated joint ventures.
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.

16

RESULTS OF OPERATIONS
The following table sets forth the results of operations as a percentage of net sales for the periods indicated (percentages may not foot due to rounding):
Three Months Ended
Nine Months Ended
November 2,
2013
October 27,
2012
November 2,
2013
October 27,
2012
Net sales
100.0
%
100.0
%
100.0
%
100.0
%
Service charges and other income
2.6

2.5

2.6

2.5

102.6

102.5

102.6

102.5

Cost of sales
63.8

63.4

63.4

63.8

Selling, general and administrative expenses
27.5

27.9

26.5

26.7

Depreciation and amortization
4.4

4.5

4.3

4.3

Rentals
0.4

0.5

0.4

0.5

Interest and debt expense, net
1.1

1.2

1.1

1.2

Gain on disposal of assets
—

(0.1
)
(0.3
)
—

Asset impairment and store closing charges
—

—

0.1

—

Income before income taxes and income on and equity in losses of joint ventures
5.3

5.0

7.0

6.0

Income taxes
1.9

1.7

2.5

2.1

Income on and equity in losses of joint ventures
—

—

—

—

Net income
3.5
%
3.3
%
4.5
%
3.9
%


17

Net Sales (Three-Month Comparison)
Three Months Ended
(in thousands of dollars)
November 2,
2013
October 27,
2012
$ Change
Net sales:



Retail operations segment
$
1,437,492

$
1,424,722

$
12,770

Construction segment
31,120

24,901

6,219

Total net sales
$
1,468,612

$
1,449,623

$
18,989

The percent change in the Company’s sales by segment and product category for the three months ended November 2, 2013 compared to the three months ended October 27, 2012 as well as the sales percentage by segment and product category to total net sales for the three months ended November 2, 2013 are as follows:
Three Months
% Change
2013-2012
% of
Net Sales
Retail operations segment


Cosmetics
(1.0
)%
15
%
Ladies’ apparel
1.5

22

Ladies’ accessories and lingerie
4.5

14

Juniors’ and children’s apparel
(0.6
)
9

Men’s apparel and accessories
0.9

17

Shoes
1.7

17

Home and furniture
(6.0
)
4


98

Construction segment
25.0

2

Total

100
%
Net sales from the retail operations segment increased $12.8 million or 1% during the three months ended November 2, 2013 compared to the three months ended October 27, 2012. Sales in comparable stores also increased 1% between the same periods.  Sales of ladies’ accessories and lingerie increased significantly over the prior year period, and sales of shoes and ladies' apparel increased moderately.  Sales of men’s apparel and accessories increased slightly over the prior year period while sales of cosmetics and juniors’ and children’s apparel decreased slightly.  Sales of home and furniture decreased significantly between the periods.
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.
The number of sales transactions decreased 2% for the three months ended November 2, 2013 compared to the three months ended October 27, 2012 while the average dollars per sales transaction increased 2%.  We recorded an allowance for sales returns of $6.6 million and $7.0 million as of November 2, 2013 and October 27, 2012, respectively.
During the three months ended November 2, 2013, net sales from the construction segment increased $6.2 million or 25% compared to the three months ended October 27, 2012 due to a shift in the timing of certain construction projects.  We believe that sales in the construction segment for fiscal 2013 will be similar to fiscal 2012; however, there is no guarantee of this sales performance.  The backlog of awarded construction contracts at November 2, 2013 totaled $158.0 million.


18

Net Sales (Nine-Month Comparison)
Nine Months Ended
(in thousands of dollars)
November 2,
2013
October 27,
2012
$ Change
Net sales:



Retail operations segment
$
4,426,270

$
4,402,721

$
23,549

Construction segment
71,330

84,146

(12,816
)
Total net sales
$
4,497,600

$
4,486,867

$
10,733

The percent change in the Company’s sales by segment and product category for the nine months ended November 2, 2013 compared to the nine months ended October 27, 2012 as well as the sales percentage by segment and product category to total net sales for the nine months ended November 2, 2013 are as follows:
Nine Months
% Change
2013-2012
% of
Net Sales
Retail operations segment


Cosmetics
(0.9
)%
15
%
Ladies’ apparel
(1.3
)
23

Ladies’ accessories and lingerie
6.9

15

Juniors’ and children’s apparel
1.6

9

Men’s apparel and accessories
(0.3
)
17

Shoes
1.4

15

Home and furniture
(6.3
)
4


98

Construction segment
(15.2
)
2

Total

100
%
Net sales from the retail operations segment increased $23.5 million or 1% during the nine months ended November 2, 2013 compared to the nine months ended October 27, 2012. Sales in comparable stores also increased 1% between the same periods.  Sales of ladies’ accessories and lingerie increased significantly over the prior year period, sales of juniors’ and children’s apparel increased moderately, and sales of shoes increased slightly. Sales of men’s apparel and accessories remained essentially flat over the prior year period while sales of cosmetics and ladies’ apparel decreased slightly. Sales of home and furniture declined significantly over the prior year period.

The number of sales transactions decreased 2% for the nine months ended November 2, 2013 compared to the nine months ended October 27, 2012 while the average dollars per sales transaction increased 3%.
During the nine months ended November 2, 2013, net sales from the construction segment decreased $12.8 million or 15% compared to the nine months ended October 27, 2012 due to a shift in the timing of certain construction projects.


19

Service Charges and Other Income
Three Months Ended
Nine Months Ended
Three
Months
Nine
Months
(in thousands of dollars)
November 2, 2013
October 27, 2012
November 2, 2013
October 27, 2012
$ Change
2013-2012
$ Change
2013-2012
Service charges and other income:






Retail operations segment






Leased department income
$
1,990

$
2,358

$
6,394

$
7,216

$
(368
)
$
(822
)
Income from GE marketing and servicing alliance
29,281

27,301

84,317

78,731

1,980

5,586

Shipping and handling income
4,262

3,965

13,720

12,671

297

1,049

Other
2,766

3,094

11,045

11,996

(328
)
(951
)
38,299

36,718

115,476

110,614

1,581

4,862

Construction segment
14

4

26

58

10

(32
)
Total service charges and other income
$
38,313

$
36,722

$
115,502

$
110,672

$
1,591

$
4,830

Service charges and other income is composed primarily of income from the Alliance with GE.  Income from the Alliance increased during the three and nine months ended November 2, 2013 primarily due to increases in finance charge income.
Gross Profit
(in thousands of dollars)
November 2, 2013
October 27, 2012
$ Change
% Change
Gross profit:




Three months ended




Retail operations segment
$
529,453

$
528,971

$
482

0.1
%
Construction segment
1,752

1,029

723

70.3

Total gross profit
$
531,205

$
530,000

$
1,205

0.2
%
Nine months ended




Retail operations segment
$
1,640,759

$
1,618,751

$
22,008

1.4
%
Construction segment
4,827

3,778

1,049

27.8

Total gross profit
$
1,645,586

$
1,622,529

$
23,057

1.4
%
Three Months Ended
Nine Months Ended
November 2, 2013
October 27, 2012
November 2, 2013
October 27, 2012
Gross profit as a percentage of segment net sales:




Retail operations segment
36.8
%
37.1
%
37.1
%
36.8
%
Construction segment
5.6

4.1

6.8

4.5

Total gross profit as a percentage of net sales
36.2

36.6

36.6

36.2

Gross profit declined 40 basis points of sales during the three months ended November 2, 2013 compared to the three months ended October 27, 2012, and gross profit improved 40 basis points during the nine months ended November 2, 2013 compared to the nine months ended October 27, 2012.
During the three months ended November 2, 2013 compared to the three months ended October 27, 2012, gross profit from retail operations declined 30 basis points of sales as a result of increased markdowns partially offset by increased markups. Gross margin declined moderately in shoes and men’s apparel and accessories and declined slightly in juniors’ and children’s apparel. Gross margin was essentially flat in cosmetics and ladies' apparel. Gross margin improved moderately in ladies’ accessories and lingerie and improved significantly in home and furniture.


20

During the nine months ended November 2, 2013 compared to the nine months ended October 27, 2012, gross profit from retail operations improved 30 basis points of sales primarily as a result of decreased markdowns.  Gross margin improved moderately in home and furniture and improved slightly in ladies’ accessories and lingerie and men’s apparel and accessories. Gross margin was essentially flat in cosmetics, ladies’ apparel and juniors’ and children’s apparel, and gross margin declined slightly in shoes.
Inventory in total and comparable stores increased 6% as of November 2, 2013 compared to October 27, 2012.  A 1% change in the dollar amount of markdowns would have impacted net income by approximately $2 million and $6 million for the three and nine months ended November 2, 2013, respectively.
We believe that gross profit from retail operations may improve slightly during fiscal 2013 as compared to fiscal 2012; however, there is no guarantee of improved gross profit performance.
Selling, General and Administrative Expenses (“SG&A”)
(in thousands of dollars)
November 2, 2013
October 27, 2012
$ Change
% Change
SG&A:




Three months ended




Retail operations segment
$
403,101

$
403,605

$
(504
)
(0.1
)%
Construction segment
1,305

1,032

273

26.5

Total SG&A
$
404,406

$
404,637

$
(231
)
(0.1
)%
Nine months ended




Retail operations segment
$
1,189,320

$
1,193,205

$
(3,885
)
(0.3
)%
Construction segment
3,500

3,458

42

1.2

Total SG&A
$
1,192,820

$
1,196,663

$
(3,843
)
(0.3
)%
Three Months Ended
Nine Months Ended
November 2, 2013
October 27, 2012
November 2, 2013
October 27, 2012
SG&A as a percentage of segment net sales:




Retail operations segment
28.0
%
28.3
%
26.9
%
27.1
%
Construction segment
4.2

4.1

4.9

4.1

Total SG&A as a percentage of net sales
27.5

27.9

26.5

26.7

SG&A decreased $0.2 million or 40 basis points of sales during the three months ended November 2, 2013 compared to the three months ended October 27, 2012.  This decrease was primarily due to a decrease in advertising expenses ($2.3 million) and taxes other than income taxes ($1.0 million) partially offset by an increase in payroll ($2.9 million), primarily of selling payroll.
SG&A decreased $3.8 million or 20 basis points of sales during the nine months ended November 2, 2013 compared to the nine months ended October 27, 2012.  This decrease was most noted in advertising expense ($7.5 million), insurance ($1.6 million) and taxes other than income taxes ($1.2 million) partially offset by an increase in payroll ($8.9 million), primarily of selling payroll.  During the nine months ended November 2, 2013, the Company also recorded a $1.5 million pretax credit to pension expense for a gain from a pension plan curtailment.
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.


21

Rentals
(in thousands of dollars)
November 2, 2013
October 27, 2012
$ Change
% Change
Rentals:




Three months ended




Retail operations segment
$
5,933

$
7,611

$
(1,678
)
(22.0
)%
Construction segment
13

13

—

—

Total rentals
$
5,946

$
7,624

$
(1,678
)
(22.0
)%
Nine months ended




Retail operations segment
$
17,015

$
24,492

$
(7,477
)
(30.5
)%
Construction segment
34

38

(4
)
(10.5
)
Total rentals
$
17,049

$
24,530

$
(7,481
)
(30.5
)%
The decrease in rental expense for the three and nine months ended November 2, 2013 compared to the three and nine months ended October 27, 2012 was primarily due to a reduction in the amount of equipment leased by the Company.
We believe that rental expense will decline during fiscal 2013, with a current projected reduction of $8 million from fiscal 2012, primarily as a result of the expiration of certain equipment leases.
Interest and Debt Expense, Net
(in thousands of dollars)
November 2, 2013
October 27, 2012
$ Change
% Change
Interest and debt expense (income), net:




Three months ended




Retail operations segment
$
15,806

$
17,042

$
(1,236
)
(7.3
)%
Construction segment
(17
)
(31
)
14

(45.2
)
Total interest and debt expense, net
$
15,789

$
17,011

$
(1,222
)
(7.2
)%
Nine months ended




Retail operations segment
$
48,398

$
52,241

$
(3,843
)
(7.4
)%
Construction segment
(53
)
(102
)
49

(48.0
)
Total interest and debt expense, net
$
48,345

$
52,139

$
(3,794
)
(7.3
)%
The decrease in net interest and debt expense for the three months ended November 2, 2013 compared to the three months ended October 27, 2012 was primarily attributable to lower average debt levels and lower average credit facility fees partially offset by lower investment income.  Total weighted average debt decreased approximately $21.2 million for the three months ended November 2, 2013 compared to the three months ended October 27, 2012, which includes an increase in weighted average short-term debt under the credit facility.

The decrease in net interest and debt expense for the nine months ended November 2, 2013 compared to the nine months ended October 27, 2012 was primarily attributable to lower average debt levels partially offset by lower investment income.  Total weighted average debt decreased approximately $48.3 million for the nine months ended November 2, 2013 compared to the nine months ended October 27, 2012, which includes an increase in weighted average short-term debt under the credit facility.

22

Gain on Disposal of Assets
(in thousands of dollars)
November 2, 2013
October 27, 2012
$ Change
(Gain) loss on disposal of assets:



Three months ended



Retail operations segment
$
(6
)
$
(1,071
)
$
1,065

Construction segment
4

(1
)
5

Total gain on disposal of assets
$
(2
)
$
(1,072
)
$
1,070

Nine months ended



Retail operations segment
$
(12,367
)
$
(2,210
)
$
(10,157
)
Construction segment
(4
)
(1
)
(3
)
Total gain on disposal of assets
$
(12,371
)
$
(2,211
)
$
(10,160
)
During the nine months ended November 2, 2013, the Company received proceeds of $15.7 million from the sale of its investment in Acumen Brands, an eCommerce company based in Fayetteville, Arkansas.  The sale resulted in a gain of $11.7 million that was recorded in gain on disposal of assets.

During the nine months ended November 2, 2013, the Company also received proceeds of $1.7 million from the sale of two former retail stores located in Oklahoma City, Oklahoma and Pasadena, Texas that were held for sale, resulting in a gain of $0.6 million that was recorded in gain on disposal of assets.
During the three months ended October 27, 2012, the Company received proceeds of $4.1 million from the sales of two former retail stores: one location was in Charlotte, North Carolina and was held for sale and the other location was in Colonial Heights, Virginia, which was closed during the period. The sales resulted in a net gain of $1.1 million that was recorded in gain on disposal of assets.

Additionally, during the nine months ended October 27, 2012, the Company received proceeds of $7.8 million from the sales of two former retail stores located in Cincinnati, Ohio and Antioch, Tennessee that were held for sale and one building that was formerly a portion of a currently operating retail location, resulting in a net gain of $0.9 million.
Asset Impairment and Store Closing Charges
(in thousands of dollars)
November 2, 2013
October 27, 2012
$ Change
Asset impairment and store closing charges:



Nine months ended



Retail operations segment
$
6,527

$
—

$
6,527

Construction segment
—

—

—

Total asset impairment and store closing charges
$
6,527

$
—

$
6,527

There were no asset impairment and store closing charges recorded during the three months ended November 2, 2013 and during the three and nine months ended October 27, 2012.
During the nine months ended November 2, 2013, the Company recorded a pretax charge of $6.5 million for asset impairment and store closing costs.  The charge was for the write-down of an operating property and certain cost method investments.
Income Taxes
The Company’s estimated federal and state income tax rate, inclusive of income on and equity in losses of joint ventures, was approximately 35.1% and 33.3% for the three months ended November 2, 2013 and October 27, 2012, respectively.  During the three months ended November 2, 2013, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes partially offset by tax benefits recognized

23

for federal tax credits. During the three months ended October 27, 2012, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes offset by a tax benefit recognized for an amended return filed where capital gain income was offset by a previously unrecognized capital loss carryforward available in the amended return year.
The Company’s estimated federal and state income tax rate, inclusive of income on and equity in losses of joint ventures, was approximately 35.1% for both nine months ended November 2, 2013 and October 27, 2012.  During the nine months ended November 2, 2013, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes partially offset by tax benefits recognized for federal tax credits. During the nine months ended October 27, 2012, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes partially offset by tax benefits recognized for: (i) an amended return filed where capital gain income was offset by a previously unrecognized capital loss carryforward available in the amended return year and (ii) net decreases in unrecognized tax benefits primarily related to statute lapses.

The Company is currently under examination by the IRS for the fiscal tax year 2011. At this time, the Company does not expect the results from this audit to have a material impact on the Company’s consolidated financial statements.
The Company expects the fiscal 2013 federal and state effective income tax rate to approximate 35%.  This rate may change if results of operations for fiscal 2013 differ from management’s current expectations.  Changes in the Company’s assumptions and judgments can materially affect amounts recognized in the condensed consolidated balance sheets and statements of income.

FINANCIAL CONDITION
A summary of net cash flows for the nine months ended November 2, 2013 and October 27, 2012 follows:
Nine Months Ended
(in thousands of dollars)
November 2, 2013
October 27, 2012
$ Change
Operating Activities
$
173,002

$
219,873

$
(46,871
)
Investing Activities
(47,016
)
(99,932
)
52,916

Financing Activities
(139,074
)
(219,419
)
80,345

Total Cash Used
$
(13,088
)
$
(99,478
)
$
86,390

Net cash flows from operations decreased $46.9 million during the nine months ended November 2, 2013 compared to the nine months ended October 27, 2012.  This decline was primarily attributable to a decrease of $75.8 million related to changes in working capital items, primarily of increases of inventories partially offset by decreases in income taxes payable.  This decline was partially offset by an increase in net income, as adjusted for non-cash items, of $29.0 million.
GE owns and manages Dillard’s branded proprietary credit card business 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 Company received income of approximately $84.3 million and $78.7 million from GE during the nine months ended November 2, 2013 and October 27, 2012, 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 late fiscal 2014, and the Company is currently considering its options concerning the future ownership and management of the credit card business.
During the nine months ended November 2, 2013, the Company received proceeds of $15.7 million from the sale of its investment in Acumen Brands, an eCommerce company based in Fayetteville, Arkansas.  The sale resulted in a gain of $11.7 million that was recorded in gain on disposal of assets.
During the nine months ended November 2, 2013, the Company also received proceeds of $1.7 million from the sale of two former retail stores located in Oklahoma City, Oklahoma and Pasadena, Texas that were held for sale, resulting in a gain of $0.6 million that was recorded in gain on disposal of assets.

24

During the nine months ended October 27, 2012, the Company received proceeds of $11.9 million from the sales of four former retail stores and one building that was formerly a portion of a currently operating retail location. Three of the stores were held for sale and were located in Cincinnati, Ohio; Antioch, Tennessee and Charlotte, North Carolina. The remaining store was located in Colonial Heights, Virginia and was closed during the nine months ended October 27, 2012. The sales resulted in a net gain of $2.0 million that was recorded in gain on disposal of assets.
Capital expenditures were $65.3 million and $111.9 million for the nine months ended November 2, 2013 and October 27, 2012, respectively.  The current year expenditures were primarily for the remodeling of existing stores.  Capital expenditures for fiscal 2013 are expected to be approximately $100 million compared to actual expenditures of $137 million during fiscal 2012.  While there are no planned store openings for fiscal 2013, we expect to begin construction of two new stores later this year at the The Mall at University Town Center in Sarasota, Florida (180,000 square feet) and The Shops at Summerlin in Las Vegas, Nevada (200,000 square feet), both of which are expected to open during the third quarter of fiscal 2014.
During the nine months ended November 2, 2013, we closed our locations at Cache Valley Mall in Logan, Utah (94,000 square feet), Randolph Mall in Asheboro, North Carolina (60,000 square feet) and Euclid Square Mall in Euclid, Ohio (100,000 square feet).  We have also announced the upcoming closure of our locations at Collin Creek Mall in Plano, Texas (195,000 square feet) and University Mall in Chapel Hill, North Carolina (64,000 square feet), both of which are expected to close during the fourth quarter of fiscal 2013 with minimal closing costs.  We remain committed to closing under-performing stores where appropriate and may incur future closing costs related to these stores when they close.
The Company had cash on hand of approximately $111.0 million as of November 2, 2013 .  As part of our overall liquidity management strategy and for peak working capital requirements, the Company maintains a $1.0 billion credit facility.  During the nine months ended November 2, 2013, the Company amended and extended this credit facility, reducing the unused commitment fee from the previous agreement and extending the facility’s expiration to July 1, 2018.

Limited to 90% of the inventory of certain Company subsidiaries, availability for borrowings and letter of credit obligations under the credit agreement was $1.0 billion at November 2, 2013 .  Borrowings of $170.0 million were outstanding at November 2, 2013 .  Letters of credit totaling $46.8 million were issued under this credit agreement leaving unutilized availability under the facility of approximately $783 million at November 2, 2013 .  Borrowings of $27.0 million were outstanding at October 27, 2012 . The Company expects to have no short-term borrowings at the end of fiscal 2013.
During the nine months ended November 2, 2013, the Company repurchased 3.9 million shares of stock for $301.6 million at an average price of $78.30 per share under the Company’s March 2013 and 2012 Stock Plans.  During the nine months ended October 27, 2012, the Company repurchased 2.5 million shares of stock for $162.1 million at an average price of $64.21 per share under its 2012 and May 2011 Stock Plans.  At November 2, 2013, no authorization remained under the 2012 and May 2011 Stock Plans, and $40.4 million of authorization remained under the Company’s March 2013 Stock Plan.  The ultimate disposition of the repurchased stock has not been determined.

In November 2013, the Company’s Board of Directors authorized the repurchase of up to an additional $250 million of the Company’s Class A Common Stock under an open-ended 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 or through privately negotiated transactions.
During the nine months ended November 2, 2013 and October 27, 2012, the Company made principal payments on long-term debt and capital lease obligations of $1.5 million and $78.2 million, respectively, at their normal maturities.
The Company paid dividends of $4.6 million and $7.4 million during the nine months ended November 2, 2013 and October 27, 2012 , respectively.  Historically, our dividends declared during the fourth quarter of a fiscal year were paid during the first quarter of the following fiscal year; however, the dividends declared during the fourth quarter of fiscal 2012 were expedited and paid during that same quarter.
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.  The Company expects peak borrowings for fiscal 2013 to not exceed $250 million.  Depending on conditions in the capital markets and other factors, the Company will from time to time consider other possible financing transactions, the proceeds of which could be used to refinance current indebtedness or for other corporate purposes.

25

There have been no material changes in the information set forth under caption “Contractual Obligations and Commercial Commitments” in Item 7,  Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2013.
OFF-BALANCE-SHEET ARRANGEMENTS
The Company has not created, and is not party to, any special-purpose entities or off-balance-sheet arrangements 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.
NEW ACCOUNTING STANDARDS
Presentation of Comprehensive Income
In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, 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 were effective prospectively beginning with the Company’s first quarter of 2013. The adoption of this update affected the format and presentation of the Company’s consolidated financial statements and the footnotes thereto but did not have any other impact on the Company’s financial statements.

Guidance on Financial Statement Presentation of Unrecognized Tax Benefit
In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists , which provides explicit presentation guidelines.  Under this ASU, an unrecognized tax benefit, or portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward except when specific conditions are met as outlined in the ASU.  When these specific conditions are met, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.  This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, and should be applied prospectively to all unrecognized tax benefits that exist at the effective date.  The adoption of this update is not expected to have a material impact on our consolidated 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,” “should,” “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 the remainder of fiscal 2013 and fiscal 2014.  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

26

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.   The Company’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended February 2, 2013, contain other information on factors that may affect financial results or cause actual results to differ materially from forward-looking statements.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the information set forth under caption “Item 7A-Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2013.
Item 4.  Controls and Procedures
The Company has established and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934).  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 quarter covered by this quarterly report, and based on that evaluation, the Company’s CEO and CFO have concluded that these disclosure controls and procedures were effective.
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended November 2, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

27

PART II.  OTHER INFORMATION
Item 1.  Legal Proceedings
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 December 4, 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.
Item 1A.  Risk Factors
There have been no material changes in the information set forth under caption “Item 1A-Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2013.

I tem 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities
Period
(a) Total Number of Shares Purchased

(b) Average Price Paid per Share

(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs

August 4, 2013 through August 31, 2013
646,557

$
77.33

646,557

$
177,324,696

September 1, 2013 through October 5, 2013
1,020,574

78.79

1,020,574

96,916,988

October 6, 2013 through November 2, 2013
735,332

76.85

735,332

40,409,106

Total
2,402,463

$
77.80

2,402,463

$
40,409,106


During the nine months ended November 2, 2013, the Company completed the remaining $92.0 million authorization under the 2012 Stock Plan. In March 2013, the Company announced that the Board of Directors authorized the repurchase of up to an additional $250 million of its Class A Common Stock under the March 2013 Stock Plan, which has no fixed or scheduled termination date. Reference is made to the discussion in Note 9, Stock Repurchase Programs , in the “Notes to Condensed Consolidated Financial Statements” in Part I of this Quarterly Report on Form 10-Q, which information is incorporated by reference herein.

In November 2013, the Company’s Board of Directors authorized the repurchase of up to an additional $250 million of the Company’s Class A Common Stock under an open-ended 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 or through privately negotiated transactions.






28

Item 6.  Exhibits
Number
Description
*3
By-Laws of Dillard’s, Inc., as amended, as currently in effect (previously filed as Exhibit 3 to Current Report on Form 8-K dated as of August 20, 2013 in File No. 1-6140).
31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
32.2
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
______________________________________
* Incorporated by reference as indicated.

29

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DILLARD’S, INC.
(Registrant)
Date:
December 4, 2013
/s/ James I. Freeman
James I. Freeman
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)


30
TABLE OF CONTENTS