I need to create an executive level report on the internal management of Belk. Inc. My assignment is that I am looking to acquire Belk, What information and analysis do I need to have in this report?

FY12 Annual Report Belk, Inc. directors ofcers and DIRECTORS Thomas M. Belk, Jr. Chairman and Chief Executive Ofcer Erskine B. Bowles President Emeritus University of North Carolina John R. Belk President and Chief Operating Ofcer Jerri L. DeVard Executive Vice President of Marketing Nokia H .W. McKay Belk Managing Director HWMB Advisors, LLC Elizabeth Valk Long Retired Executive Vice President Time Inc. John R. Thompson Senior Vice President and General Manager BestBuy.com John L. Townsend, III Managing Partner and Chief Operating Ofcer Tiger Management LLC Honorary Director Sarah Belk Gambrell Thomas C. Nelson Chairman and Chief Executive Ofcer National Gypsum Company EXECUTIVE OFFICERS Thomas M. Belk, Jr. Chairman and Chief Executive Ofcer Kathryn Bufano President and Chief Merchandising Ofcer John R. Belk President and Chief Operating Ofcer Ralph A. Pitts Executive Vice President, General Counsel and Secretary Brian T. Marley Executive Vice President and Chief Financial Ofcer To Belk Stockholders: Our distinctive new brand, as well as major investments we are making in key strategic initiatives, helped produce outstanding results for the Company in fiscal year 2012 which position us for continued growth and success. Our results indicate that more customers than ever are responding favorably to the promise of Modern. Southern. Style. in our stores and at belk.com, and to the friendly, hospitable service that has long been a hallmark of Belk. Financial highlights of fiscal year 2012 include: Total sales increased 5.3 percent to $3.7 billion compared to the prior year. We led our key department store competitors in comparable store sales growth for the second consecutive year with a 5.5 percent increase. We also marked the eighth consecutive quarter of year-over-year increases in comparable store sales. The growth last year was driven largely by the execution of key strategic initiatives fueled by our investments in merchandising, rebranding, eCommerce, store remodels and customer service improvements. Belk, Inc. Sales FY2010 - FY2012 $3.7B $3.5B $3.3B FY2010 Net income increased 43.5 percent from $127.6 million to $183.1 million compared to the prior year. The increase was largely a result of higher sales and improved margin, expense leverage, and the release of a deferred tax valuation allowance. Net income excluding non-comparable items for the year increased 27 percent to $162.3 million compared to the prior year. A detailed reconciliation of net income to net income excluding noncomparable items is included on page 9 of this annual report. We maintained a strong balance sheet with over $450 million in cash at year end. FY2011 FY2012 Belk, Inc. Net Income FY2010 - FY2012 $183M $128M $67M The Company's Board of Directors declared a regular dividend of $0.75 per FY2010 FY2011 FY2012 share for stockholders of record on March 28, 2012 and authorized a stock repurchase of up to 2,450,000 shares of the Company's common stock at a price of $40.80 per share. Exceeding our key competitors in comparable store sales growth for the second consecutive year is an unprecedented accomplishment for Belk which sends a strong message to customers, vendors and competitors that the Company is a leader in our markets and the entire retail industry. We are extremely grateful to our team of more than 23,000 associates who are building a stronger Belk through their efforts and commitment. INVESTING IN BELK FOR THE FUTURE We made progress on many fronts last year as we pushed ahead with major investments in key strategic initiatives that are strengthening our business capabilities and providing a solid foundation for sustained growth and profitability. Over a five-year period that began in fiscal year 2011, we are investing approximately $600 million in a number of key strategic initiatives described briefly in this letter. Store Improvements Keeping stores modern and attractive and providing a compelling shopping experience for customers is a top priority at Belk. To this end, the Company is investing $270 million in store improvements over a three-year period that began last year. The projects include new store openings, expansions and remodels of existing stores, expansions and remodels of key merchandise departments, and the rollout of new merchandising concepts in targeted demand centers. Last year, we opened one new store to replace an existing store in Corinth, MS, expanded and renovated three stores and completed major remodels in seven stores. In addition, we completed shoe department expansion and remodeling projects in 32 stores along with fashion jewelry department remodeling projects in 56 stores. We want to strengthen our position as a destination for shoes, and we are working on increasing our shoe department size from an overall average of 6.5 percent to almost 10 percent of total store selling space. This year, Belk will invest approximately $75 million for expansion and remodeling projects in 29 stores. Two stores will be relocated into new store buildings, four stores will be expanded and remodeled, 13 stores will be remodeled, and shoe departments and fashion jewelry departments will be expanded and remodeled in 10 stores. Information Technology We are investing approximately $210 million in information technology over a five-year period that began last year to rebuild or replace core systems and technology, and to deliver new business capabilities to enhance the Company's growth and profitability. Key systems initiatives include the launch of an enterprise solution to support our strategic merchandising and retail technology programs, significant enhancements to the belk.com website and its fulfillment capabilities, the implementation of a new data warehouse and several store technology infrastructure improvement projects. These efforts will support a critical long-term strategic goal for Belk to deliver a seamless omni-channel shopping experience for customers that reaches across our stores, belk.com, mobile devices and social media. Ultimately, we want to give our customer the opportunity to shop with us where she wants, when she wants and in the way that she wants. The changes we are making in technology will provide a strong and stable foundation from which all software applications will interconnect, share common information and work together. As a result, associates can be more efficient and effective in their roles, whether they are merchants, financial analysts, store managers, marketers, belk.com customer service representatives or sales associates assisting customers at the point of sale. Our innovative new systems and processes will provide improved decision making tools that allow management to react quickly to changing sales trends, improve merchandise mix, distribute merchandise based on individual market needs and manage inventory levels based on customer demand. eCommerce More and more customers both from within and outside of our store market area are shopping at belk.com as a result of the exciting changes and enhancements being made to our growing eCommerce business. belk.com contributed $72 million in sales last year, a 108 percent increase over the prior year, and sales continue to grow at a rapid pace. These results were made possible by systems improvements, expansion of merchandise assortments, online shop enhancements, increased interactive marketing and implementation of new social community engagement strategies. We plan to invest approximately $53 million in eCommerce over a four-year period that began last year to create a new systems platform and functionality enhancements to make shopping online at belk.com easier and more engaging. We are investing $4.5 million to open a new 515,000-square-foot eCommerce fulfillment center in Jonesville, SC that is expected to begin operating in June 2012 and will generate 124 new jobs over the next five years. The center is in addition to the current 259,000-square-foot Belk eCommerce fulfillment center in Pineville, NC. 2 Merchandise Planning and Processes Our Company's merchandising and planning organization, along with the processes and systems that drive Belk's business, are undergoing fundamental changes with the goal of creating world class, industry-leading business capabilities that will strengthen our competitiveness and propel our growth. The first phase of this transformational initiative was Project IMPACT (Improving Merchandising, Planning, Allocation, Core Processes and Tools), which involved a major restructuring of our merchandising and planning organization and the development of sophisticated planning processes and tools. Forty additional planners were hired and 59 buyer/planner teams were formed and trained to work in a collaborative environment where they plan, purchase and travel to market together to build stronger merchandise assortments tailored to the fashion wants and needs of our customers market by market. Last year, Project IMPACT transitioned into Project SMART (Strategic Merchandising and Retail Technology), which involves a total upgrade of our systems and technology infrastructure over the next four years, including a new core transactional system, a new suite of merchandising tools, a new data warehouse, a new point-of-sale register system and a new eCommerce platform system. The installation of a new Oracle enterprise system will provide integrated capabilities for Belk with innovative, best-of-industry merchandising practices and solutions, including purchasing, planning, allocation, replenishment, demand forecasting, pricing and promotion, merchandising financial planning, and size optimization. Private Brands Belk private brands are a key differentiator for Belk and also represent one of the fastest growing areas of our business in terms of total sales and margin results. Two new private brand labels debuted last year Via Neroli ladies shoes and a ND Weekend line of ladies casual and modern sportswear and we launched a line of jewelry and accessories under our Red Camel label. Women's apparel, home goods, kids, jewelry and handbags were among the private brands demand centers producing the largest sales and margin growth last year. Two additional new brands Black Brown 1826, a line of modern men's sportswear offered in partnership with designer Joseph Abboud and Lord & Taylor; and Islander, a new modern, Southern brand for men inspired by the casual island and coastal lifestyle so prevalent in Belk markets launched in Belk stores in Spring 2012. Advertising, Marketing and Branding Our rebranding in the Fall of fiscal year 2011 established a modern new look and personality for Belk, and feedback received from both store and belk.com customers through calls, letters, emails and Belk Facebook page comments has been overwhelmingly positive. Last year, we continued to build our brand through increased advertising that included high impact television commercials and direct mail advertising that reflect our brand image and communicate the latest and best fashion and value offerings at Belk. Our advertising mix also contained increased web advertising and social media campaigns aimed at engaging customers and attracting them to shop in our stores and at belk.com. A highlight of last year's marketing and branding efforts was Belk's debut as title sponsor of the annual college football bowl held in December 2011 at Bank of America Stadium in Charlotte. More than 58,000 football fans attended the inaugural Belk Bowl game between teams from North Carolina State University and the University of Louisville, which was televised nationally on ESPN. Game day belk.com sales were up 92 percent with states outside our footprint accounting for 22 percent of total eCommerce sales versus an average of 10 percent. Revitalizing Our Customer Care A founding principle of our business since it began nearly 125 years ago has been to consistently satisfy our customers' shopping and service needs to win their trust and loyalty. This principle is more important than ever in today's crowded retail landscape as we seek to differentiate Belk from our competitors. 3 Launch of the Revitalizing Our Customer Care initiative in stores last year marks the beginning of comprehensive changes in how we operate and manage our stores. The ultimate goal is to build a strong service and sales culture that will focus the time, energy and resources of store associates on providing superior service. We want to create a more compelling shopping experience for customers with each visit. The 36-month initiative is aimed at fostering a dynamic selling environment by reducing or eliminating non-selling tasks. We are initiating new standards and training to improve in-store support processes such as moving in-bound merchandise from the loading dock to the sales floor in a timely manner, execution of markdowns and sales setups, and marked out of stock processes. We are also implementing a new merit-based compensation plan for store associates, a new store organization structure that includes the addition of an operations team manager in each store and realigned responsibilities and new titles for store management, and a new workforce management and scheduling system. We are conducting research studies in select stores involving thousands of customer observations and interviews, and dozens of interviews with store managers and associates, to assess current customer service performance and better understand behaviors that drive sales and enhance service. Research findings will be used to help us reinvigorate the service culture of our stores by developing our associates' customer service and selling skills and behaviors, and strategically investing payroll to drive customer service excellence. Strategic Sourcing The strategic sourcing program launched in fiscal year 2011 produced significant expense savings for Belk and a boost to the bottom line last year. The centralized procurement function delivered $13.8 million in expense, margin and capital expenditure savings, and Belk achieved a lift in cash flow of nearly $10 million as a result of improved payment terms. These savings were achieved through a new strategic sourcing group that defines sourcing, contracting and deal approval processes. Standard Belk contract templates were also developed and institutionalized to mitigate supplier risk. Additionally, our supplier base was upgraded and optimized by creating stronger, more innovative and strategic relationships with key vendors. PROMOTING A HIGH PERFORMANCE CULTURE AT BELK To win in the marketplace, we must first win in the workplace. Being committed to the success of our associates goes beyond ensuring strong job performance. We need to support our associates through continuous feedback, coaching and an environment of encouragement and trust. We want to build a culture where all associates feel they have a voice. That's what our new Associate Engagement Program is all about. We have engaged Gallup to assist us in developing a new associate engagement process to gather feedback and use it to foster a strong culture throughout Belk. The new Associate Engagement survey, called \"Belk in Touch,\" will be conducted company-wide in Spring 2012 and is designed to better determine our associates' specific likes and dislikes about their jobs and company. The findings will be used to identify workplace issues and opportunities that will be addressed through action plans designed to improve the quality of our workplace. Other key human resources initiatives recently completed or that are underway at Belk include installation of a new Talent Management System; enhancements to our management succession planning process; a new, more simplified performance appraisal process; targeted efforts to improve the rate of internal promotions and appointments to fill new and open positions; and a new Leadership, Engagement, Acceleration and Development program (LEAD) for future leaders. Belk also continues its commitment to diversity and inclusion. There is no better way to strengthen our talent base and gain a broad range of ideas and viewpoints that help us meet the needs of our customers and associates. We will continue to improve the way we reflect our culture so that we attract diverse candidates when filling positions. We also need to cast a wider recruiting net to include a more diverse pool of candidates. We have made progress in strengthening the diversity of the Company. The number of diverse managers at Belk has grown from 8.9 percent of total managers in 2005 to 18.1 percent today. 4 As our markets become increasingly more diverse, we have greater opportunities to hire people from a variety of different backgrounds and cultures. We are reaching out to a number of culturally diverse organizations, schools and universities to help position ourselves as a diverse company. We are also working hard to reflect our inclusive culture in our advertising, associate communications, marketing materials and in the shopping environment. Attracting diverse associates, and making everyone feel included, is paramount to having a winning work climate and making Belk a great place to work. INNOVATION Another important way that we are changing to meet the demands of the future has to do with creating a culture of innovation. Improving the ways we learn, adapt to changes and take risks are all opportunities that we intend to address. With technology rapidly changing the way customers shop, it is imperative for Belk to encourage innovation throughout the Company and seek ways to improve how we create, collaborate and share ideas. Creating a work environment that allows and expects managers and associates to produce and execute innovative ideas is paramount to evolving and growing our business model. This year, we formed an Innovation Committee to guide our innovation efforts and begin developing plans and strategies. Examples of actions taken thus far include conducting a series of Lunch & Learn programs on innovation at the corporate office, adding innovation awards to our annual recognition program, including recognition of innovation in major corporate meetings, adding innovation to our training curriculum, including innovative behaviors in our leadership profile, and benchmarking with other companies to learn best practices for fostering innovation. COMMUNITY OUTREACH Community involvement and philanthropy have been part of Belk's DNA since our founding in 1888, and they continue to be part of our core values today. Our Company, associates, customers and vendors contributed more than $18.3 million to local communities in fiscal year 2012. Of the total amount, Belk corporate dollars funded $5.1 million to over 200 nonprofit organizations, with a focus on education, breast cancer research and awareness, and community strengthening. The remainder of the funding includes associate, vendor and customer dollars raised in Belk-led charitable initiatives, including Belk Charity Sale. Key gifts made during fiscal 2012 included: More than $10 million to over 7,800 local charities through Belk's semi-annual Charity Sale. $1 million to Susan G. Komen for the Cure, which includes corporate, associate and customer dollars and is the second year payment of a three-year, $3 million commitment to fund breast cancer research and awareness efforts across Belk's 16-state market area. More than $800,000, including corporate, associate, vendor and customer dollars, in disaster relief funding to help Tuscaloosa, AL and other communities in the Southeast rebuild after the April 2011 storms. Over $700,000, including corporate and associate dollars, to local United Way chapters in Belk markets. Key gifts funded directly by Belk, Inc. included: $1 million gift over five years to fund The Belk Boutique at the Duke Cancer Center in Durham, NC, which will provide hats, scarves, cosmetics and more to cancer patients. $750,000 to The Belk Foundation to assist in its efforts to ensure all students receive a quality public education. $350,000 to the Breast Cancer Research Foundation, $250,000 of which funded a grant at the UNC Lineberger Comprehensive Cancer Center in Chapel Hill, NC. 5 $200,000 sponsorship over two years of Major League Baseball's Civil Rights Game in Atlanta, GA. $50,000 to support the Central Intercollegiate Athletic Association (CIAA) Scholarship Fund. Additionally, we supported numerous store fundraising events and fashion shows to benefit deserving charities in dozens of Belk communities. SUSTAINABILITY Sustainability is all about caring for our community. That is what makes it an integral part of our corporate values. Acting responsibly in our business practices includes protecting and preserving the world around us. Our initiatives include a company-wide recycling program, increased energy efficiency, more sustainable store construction, reduced use of product packaging materials and use of solar energy at corporate office and store locations. We are also engaging with Business for Social Responsibility (BSR) to measure and reduce our carbon footprint. A FUTURE OF PROMISE The fact that we approach the advent of our 125th anniversary in a position of solid financial strength and strong forward momentum is a testament to our unique organization and the remarkable group of people who make its success possible. To our stockholders, and to our customers, associates and the communities we serve, please know that you have my deepest thanks. I am so proud to be a part of the Belk team. Our talented, devoted and determined managers and associates have, through their hard work and sacrifices, bought us to this point by demonstrating what it means to be relentless in caring for our customers. On behalf of our management team, I also want to express my appreciation to the outstanding members of our Board of Directors whose constant guidance and counsel have contributed greatly to our growth and success. I hope you share my excitement about your Company's performance last year and the many ways in which Belk associates are building on our rich past and growing financial success by continually changing and innovating in order to be the best at what they do to make our future even brighter. Sincerely, Thomas M. Belk, Jr. Chairman of the Board and Chief Executive Officer 6 BUSINESS OF THE COMPANY Business Overview Belk, Inc., together with its subsidiaries (collectively, the \"Company\" or \"Belk\"), is the largest privately owned mainline department store business in the United States, with 303 stores in 16 states, as of the fiscal year ended January 28, 2012. Located primarily in the southern United States, the Company generated revenues of $3.7 billion for the fiscal year 2012, and together with its predecessors, has been successfully operating department stores since 1888. Belk is committed to providing its customers a compelling shopping experience and merchandise that reflects \"Modern. Southern. Style.\" Belk stores seek to provide customers the convenience of one-stop shopping, with an appealing merchandise mix and extensive offerings of brands, styles, assortments and sizes. Belk stores sell top national brands of fashion apparel, shoes and accessories for women, men and children, as well as cosmetics, home furnishings, housewares, fine jewelry, gifts and other types of quality merchandise. The Company also sells exclusive private label brands, which offer customers differentiated merchandise selections. Larger Belk stores may include hair salons, spas, restaurants, optical centers and other amenities. Although the Company operates 93 stores that exceed 100,000 square feet in size, the majority of Belk stores range in size from 60,000 to 100,000 square feet. Most of the Belk stores are anchor tenants in major regional malls or in open-air shopping centers in medium and smaller markets. In the aggregate, the Belk stores occupy approximately 22.8 million square feet of selling space. Management of Belk's store operations is organized into three regional operating divisions, with offices in Raleigh, NC, Atlanta, GA and Birmingham, AL, respectively. Each unit is headed by a division chair and a director of stores. Division offices execute centralized initiatives at the individual stores, and their primary activities relate to providing management and support for the personnel, operations and maintenance of the Belk stores in their regions. These divisions are not considered segments for financial reporting purposes. Belk Stores Services, Inc., a subsidiary of Belk, Inc., and its subsidiary Belk Administration Company, along with Belk International, Inc., a subsidiary of Belk, Inc., and its subsidiary, Belk Merchandising Company, LLC (collectively \"BSS\"), coordinate the operations of Belk stores on a company-wide basis. BSS provides a wide range of services to the Belk division offices and stores, such as merchandising, merchandise planning and allocation, advertising and sales promotion, information systems, human resources, public relations, accounting, real estate and store planning, credit, legal, tax, distribution and purchasing. Business Strategy Belk adopted a new mission and vision as part of its re-branding launch in the third quarter of fiscal year 2011. The mission is \"to satisfy the modern Southern lifestyle like no one else, so that our customers get the fashion they desire and the value they deserve.\" The vision is \"for the modern Southern woman to count on Belk first. For her, for her family, for life.\" The Company seeks to maximize its sales opportunities by providing quality merchandise assortments of fashion goods that differentiate its stores from competitors. Belk merchants and buyers monitor fashion merchandising trends, shop domestic and international markets and leverage relationships with key vendors in order to provide the latest seasonal assortments of most-wanted styles and brands of merchandise. Through merchandise planning and allocation, the Company tailors its assortments to meet the particular needs of customers in each market. The Company conducts customer research and participates in market studies on an ongoing basis in order to obtain information and feedback from customers that will enable it to better understand their merchandise needs and service preferences. The Company's marketing and sales promotion strategy seeks to attract customers to shop at Belk by keeping them informed of the latest fashion trends, merchandise offerings, and sales promotions through a combination of advertising and interactive media, including direct mail, circulars, broadcast, Internet, social media (including Facebook, Twitter and YouTube) and in-store special events. Belk uses its proprietary database 7 to communicate directly to key customer constituencies with special offers designed to appeal to these specific audiences. The sales promotions are designed to promote attractive merchandise brands and styles at compelling price values with adequate inventories planned and allocated to ensure that stores will be in stock on featured merchandise. Belk strives to attract and retain talented, well-qualified associates who provide a high level of friendly, personal service to enhance the customer's shopping experience. Belk associates are trained to be knowledgeable about the merchandise they sell, approach customers promptly, help when needed, and provide quick checkout. The Company desires to be an inclusive Company that embraces diversity among its associates, customers, and vendors. Its ongoing diversity program includes a number of company-wide initiatives aimed at increasing the diversity of its management and associate teams, increasing its spend with diverse vendors, creating awareness of diversity issues, and demonstrating the Company's respect for, and responsiveness to, the rapidly changing cultural and ethnic diversity in Belk markets. Belk has also planned investments in key strategic initiatives totaling approximately $600 million over a five-year period that began in fiscal year 2011. The Company is investing in store remodels; eCommerce; information technology; branding, marketing and advertising; merchandise planning and processes; service improvements and improved sourcing practices. Growth Strategy The Company has focused its growth strategy in the last several years on remodeling and expanding existing stores, developing new merchandising concepts in targeted demand centers, and expanding its online capabilities. The Company will, however, continue to explore new store opportunities in markets where the Belk name and reputation are well known and where Belk can distinguish its stores from the competition. The Company will also consider closing stores in markets where more attractive locations become available or where the Company does not believe there is potential for long term growth and success. In addition, the Company periodically reviews and adjusts its space requirements to create greater operating efficiencies and convenience for the customer. In fiscal 2012, the Company completed major remodel projects in seven stores, opened one new store as a replacement for an existing store and completed expansions of three stores. In addition, the Company also completed 56 shoe and jewelry department remodels. In fiscal year 2013, the Company plans to complete four store expansions and open two stores as replacements for existing stores. The Company also intends to continue remodeling existing stores and rolling out new merchandising concepts in targeted demand centers. Net Income Excluding Non-Comparable Items To provide clarity in measuring Belk's financial performance, Belk supplements the reporting of its consolidated financial information under generally accepted accounting principles (GAAP) with the non-GAAP financial measure of \"net income excluding non-comparable items.\" Belk believes that \"net income excluding non-comparable items\" is a financial measure that emphasizes the company's core ongoing operations and enables investors to focus on period-over-period operating performance. It is among the primary indicators Belk uses in planning and operating the business and forecasting future periods, and Belk believes this measure is an important indicator of recurring operations because it excludes items that may not be indicative of or are unrelated to core operating results. Belk also excludes such items in connection with evaluating company performance in connection with its incentive compensation plans. In addition, this measure provides a better baseline for modeling future earnings expectations and makes it easier to compare Belk's results with other companies that operate in the same industry. Net income is the most directly comparable GAAP measure. 8 The non-GAAP measure of \"net income excluding non-comparable items\" should not be considered in isolation or as a substitute for GAAP net income. A detailed reconciliation of GAAP net income to net income excluding non-comparable items is set forth in the table below: BELK, INC. AND SUBSIDIARIES RECONCILIATION OF NET INCOME AND NET INCOME EXCLUDING NON-COMPARABLE ITEMS (unaudited) Fiscal Year Ended January 28, January 29, 2012 2011 (millions) Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of property and equipment, net of income tax . . . . . . . . . . . . . . Asset impairment and exit costs, net of income tax . . . . . . . . . . . . . . . . . . . . Release of deferred tax valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . $183.1 (2.3) 1.7 (20.2) $127.6 (4.2) 4.0 Net income excluding non-comparable items . . . . . . . . . . . . . . . . . . . . . . . . $162.3 $127.4 Where You Can Find More Information The Company makes available free of charge through its website, www.belk.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after the Company files such material with, or furnishes it to, the U.S. Securities and Exchange Commission (\"SEC\"). 9 BELK, INC. FINANCIAL INFORMATION SELECTED FINANCIAL DATA The following selected financial data are derived from the consolidated financial statements of the Company. January 28, 2012 Fiscal Year Ended January 29, January 30, January 31, February 2, 2011 2010 2009 2008 (in thousands, except per share amounts) SELECTED STATEMENT OF INCOME DATA: Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,699,592 $3,513,275 $3,346,252 $3,499,423 $3,824,803 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,461,515 2,353,536 2,271,925 2,430,332 2,636,888 Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326,649 Depreciation and amortization expense . . . . . . . . . . . . . . . . 122,761 140,239 158,388 165,267 159,945 Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,910 245,981 147,441 (232,643) 198,117 Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . 250,098 195,871 97,190 (283,281) 138,644 Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183,148 127,628 67,136 (212,965) 95,740 Basic net income (loss) per share . . . . . . . . . . . . . . . . . . . . 4.04 2.72 1.39 (4.35) 1.92 Diluted net income (loss) per share . . . . . . . . . . . . . . . . . . . 4.02 2.71 1.39 (4.35) 1.92 Cash dividends per share . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.550 0.800 0.200 0.400 0.400 SELECTED BALANCE SHEET DATA: Accounts receivable, net(1) . . . . . . . . . . . . . . . . . . . . . . . . . 39,431 31,119 22,427 34,043 65,987 Merchandise inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 887,029 808,503 775,342 828,497 932,777 Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 845,418 924,450 986,234 808,031 750,547 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,514,216 2,389,631 2,582,575 2,503,588 2,851,315 Long-term debt and capital lease obligations . . . . . . . . . . . 523,679 539,239 688,856 693,190 722,141 Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,236,230 1,156,272 1,094,295 1,032,027 1,388,726 SELECTED OPERATING DATA: Number of stores at end of period . . . . . . . . . . . . . . . . . . . . 303 305 305 307 303 Comparable store net revenue increase (decrease) . . . . . . . 5.5% 5.1% (4.6)% (8.7)% (1.1)% (on a 52 versus 52 week basis) (1) The Company previously presented amounts due from vendors on a gross basis due to systems constraints and the lack of available information in fiscal year 2009 and prior. In fiscal years 2012, 2011, and 2010, the Company has presented amounts due from vendors on a net basis, and revised amounts presented in the fiscal year 2009 balance sheet for comparability purposes. This transaction caused a reduction in accounts receivable for fiscal years 2012, 2011, 2010 and 2009. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Belk, Inc., together with its subsidiaries (collectively, the \"Company\" or \"Belk\"), is the largest privately owned mainline department store business in the United States, with 303 stores in 16 states, primarily in the southern United States as of the end of fiscal year 2012. The Company generated revenues of $3.7 billion for the fiscal year ended January 28, 2012, and together with its predecessors, has been successfully operating department stores since 1888 by seeking to provide superior service and merchandise that meets customers' needs for fashion, value and quality. The Company's fiscal year is a 52- or 53-week period ending on the Saturday closest to each January 31. Fiscal years 2012, 2011 and 2010 ended on January 28, 2012, January 29, 2011 and January 30, 2010, respectively. The Company's total revenues increased 5.3% in fiscal year 2012 to $3.7 billion. Comparable store sales increased 5.5% as a result of effective execution of key strategic initiatives that included investments in merchandising, rebranding, eCommerce, store remodels and service improvements. Merchandising categories with the highest growth rate for the year included ladies shoes, children's and home. The Company calculates comparable store revenue as sales from stores that have reached the one-year anniversary of their opening as of the beginning of the fiscal year and eCommerce revenues, but excludes closed stores. Stores undergoing remodeling, expansion or relocation remain in the comparable store revenue calculation. Definitions and calculations of comparable store revenue differ among companies in the retail industry. Net income was $183.1 million or $4.04 per basic share and $4.02 per diluted share in fiscal year 2012 compared to net income of $127.6 million or $2.72 per basic share and $2.71 per diluted share in fiscal year 2011. The increase in net income reflects higher sales and improved margin, improved expense leverage and the release of a deferred tax valuation allowance. Management believes that consumers will remain focused on value in fiscal year 2013. The Company intends to continue to be flexible in sales and inventory planning and in expense management in order to react to changes in consumer demand. The Company did experience mid-single digit increases in the merchandise costs of our goods during fiscal year 2012 resulting primarily from increased raw material costs, but also from increased labor and energy costs. The Company managed the effect of the cost increases through sourcing strategies, product design and pricing actions so that margins for fiscal year 2012 were not materially affected. Belk stores seek to provide customers the convenience of one-stop shopping, with an appealing merchandise mix and extensive offerings of brands, styles, assortments and sizes. Belk stores sell top national brands of fashion apparel, shoes and accessories for women, men and children, as well as cosmetics, home furnishings, housewares, fine jewelry, gifts and other types of quality merchandise. The Company also sells exclusive private label brands, which offer customers differentiated merchandise selections. Larger Belk stores may include hair salons, spas, restaurants, optical centers and other amenities. The Company seeks to be the leading department store in its markets by selling merchandise to customers that meet their needs for fashion, selection, value, quality and service. To achieve this goal, Belk's business strategy focuses on quality merchandise assortments, effective marketing and sales promotional strategies, attracting and retaining talented, well-qualified associates to deliver superior customer service, and operating efficiently with investments in information technology and process improvement. The Company operates retail department stores in the highly competitive retail industry. Management believes that the principal competitive factors for retail department store operations include merchandise selection, quality, value, customer service and convenience. The Company believes its stores are strong competitors in all of these areas. The Company's primary competitors are traditional department stores, mass merchandisers, national apparel chains, individual specialty apparel stores and direct merchant firms, including J.C. Penney Company, Inc., Dillard's, Inc., Kohl's Corporation, Macy's, Inc., Sears Holding Corporation, Target Corporation and Wal-Mart Stores, Inc. The Company has focused its growth strategy in the last several years on remodeling and expanding existing stores, developing new merchandising concepts in targeted demand centers, and expanding its online capabilities. The 11 Company will, however, continue to explore new store opportunities in markets where the Belk name and reputation are well known and where Belk can distinguish its stores from the competition. In fiscal year 2012, the net store selling square footage remained consistent due to three store closings, offset by one store opening and three store expansions. eCommerce The Company continues to grow its eCommerce business and expand capabilities on the belk.com website. The belk.com website features a wide assortment of fashion apparel, accessories and shoes, plus a large selection of cosmetics, home and gift merchandise. Many leading national brands are offered at belk.com along with the Company's exclusive private brands. In fiscal year 2012, the Company strengthened its eCommerce business with systems improvements, expansion of merchandise assortments, increased multimedia marketing and implementation of new social community engagement strategies. The Company's 142,000 square foot eCommerce center in Pineville, NC was expanded by 117,000 square feet in the fourth quarter of fiscal year 2011. Additionally, in February 2012, the Company entered into a lease for a 515,000 square foot fulfillment center in Jonesville, SC, which is planned to begin operations in June 2012. Results of Operations The following table sets forth, for the periods indicated, the percentage relationship to revenues of certain items in the Company's consolidated statements of income and other pertinent financial and operating data. Fiscal Year Ended January 28, January 29, January 30, 2012 2011 2010 SELECTED FINANCIAL DATA Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset impairment and exit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension curtailment charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SELECTED OPERATING DATA: Selling square footage (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Store revenues per selling square foot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comparable store net revenue increase (decrease) . . . . . . . . . . . . . . . . . . . . . Number of stores Opened . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Combined stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Closed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 66.5 25.4 0.1 0.1 8.1 1.4 1.8 5.0 100.0% 67.0 26.0 0.2 0.2 7.0 1.4 1.9 3.6 100.0% 67.9 26.5 0.1 1.2 0.1 4.4 1.5 0.9 2.0 22,800 22,800 23,400 $ 162 $ 154 $ 143 5.5% 5.1% (4.6)% 1 (3) 303 1 (1) 305 3 (5) 305 The Company's store and eCommerce operations have been aggregated into one operating segment due to their similar economic characteristics, products, customers and methods of distribution. These operations are expected to continue to have similar characteristics and long-term financial performance in future periods. 12 The following table gives information regarding the percentage of revenues contributed by each merchandise area for each of the last three fiscal years. There were no material changes between fiscal years, as reflected in the table below. Fiscal Year 2012 Merchandise Areas Fiscal Year 2011 Fiscal Year 2010 Women's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cosmetics, Shoes and Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Men's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Children's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34% 34% 17% 9% 6% 35% 33% 17% 9% 6% 36% 33% 16% 9% 6% Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 100% 100% Comparison of Fiscal Years Ended January 28, 2012 and January 29, 2011 Revenues. In fiscal year 2012, the Company's revenues increased 5.3%, or $0.2 billion, to $3.7 billion from $3.5 billion in fiscal year 2011. The increase was primarily attributable to a 5.5% increase in revenues from comparable stores, partially offset by a $6.8 million decrease in revenues due to closed stores. Cost of Goods Sold. Cost of goods sold was $2.5 billion, or 66.5% of revenues in fiscal year 2012 compared to $2.4 billion, or 67.0% of revenues in fiscal year 2011. The increase in cost of goods sold of $108.0 million was primarily due to the increase in revenues. The decrease in cost of goods sold as a percentage of revenues was primarily attributable to reduced markdown activity, as well as reduced occupancy costs due to the closure of three leased locations, coupled with increasing revenues. Selling, General and Administrative Expenses. Selling, general and administrative expenses (\"SG&A\") were $938.0 million, or 25.4% of revenues in fiscal year 2012 compared to $914.1 million, or 26.0% of revenues for fiscal year 2011. The increase in SG&A expenses was primarily due to an increase in payroll, benefits, and advertising expense, partially offset by a reduction in depreciation expense for fiscal year 2012. The SG&A expense rate decreased due to the 5.5% increase in comparable store revenues combined with a decrease in depreciation expense, partially offset by an incremental increase in payroll and benefits expense as a percentage of revenues. Gain on sale of property and equipment. Gain on sale of property and equipment was $3.1 million for fiscal year 2012 compared to $6.4 million for fiscal year 2011. The fiscal year 2012 gain was primarily due to the $2.6 million of amortization of the deferred gain on the sale and leaseback of the Company's headquarters building located in Charlotte, NC, as well as a $1.2 million gain on the nonmonetary exchange of a retail location. The fiscal year 2011 gain was primarily due to the $2.6 million of amortization of the deferred gain on the sale and leaseback of the Company's headquarters building located in Charlotte, NC, as well as $2.3 million for gains on the sale of three former retail locations. Asset Impairment and Exit Costs. In fiscal year 2012, the Company recorded a $3.5 million charge for exit costs associated with the closing of one store, a $1.3 million charge for real estate holding costs, and $0.4 million in asset impairment charges primarily to adjust a retail location's net book value to fair value. The Company determines fair value of its retail locations primarily based on the present value of future cash flows. These charges were partially offset by a $2.9 million reversal of previously estimated exit cost reserves due to the termination of the leases prior to their end date. In fiscal year 2011, the Company recorded $5.9 million in asset impairment charges primarily to adjust two retail locations' net book values to fair value. The Company also recorded a $3.5 million charge for real estate holding costs, offset by a $3.5 million revision to a previously estimated lease buyout reserve. Interest Expense. In fiscal year 2012, the Company's interest expense decreased $0.5 million to $50.2 million from $50.7 million for fiscal year 2011. The decrease was primarily due to a decrease in total debt for a majority of fiscal year 2012 as a result of the $125.0 million discretionary payment towards the bank term loan made on November 23, 2010. 13 Interest Income. In fiscal year 2012, the Company's interest income decreased to $0.3 million from $0.6 million in fiscal year 2011. The decrease was primarily due to lower short-term investments and lower market interest rates in fiscal year 2012 as compared to fiscal year 2011. Income tax expense. Income tax expense for fiscal year 2012 was $67.0 million, or 26.8%, compared to $68.2 million, or 34.8%, for the same period in fiscal year 2011. The effective tax rate decreased primarily as a result of a $20.2 million deferred state tax valuation allowance that was released during fiscal year 2012. Comparison of Fiscal Years Ended January 29, 2011 and January 30, 2010 Revenues. In fiscal year 2011, the Company's revenues increased 5.0%, or $0.2 billion, to $3.5 billion from $3.3 billion in fiscal year 2010. The increase was primarily attributable to a 5.1% increase in revenues from comparable stores and a $5.8 million increase in revenues from new stores, partially offset by a $12.0 million decrease in revenues due to closed stores. Cost of Goods Sold. Cost of goods sold was $2.4 billion, or 67.0% of revenues in fiscal year 2011 compared to $2.3 billion, or 67.9% of revenues in fiscal year 2010. The increase in cost of goods sold of $81.6 million was primarily due to the increase in revenues. The decrease in cost of goods sold as a percentage of revenues was primarily attributable to reduced markdown activity, partially offset by an increase in buying expenses related to the Company's merchandising initiatives for fiscal year 2011. Selling, General and Administrative Expenses. SG&A expenses were $914.1 million, or 26.0% of revenues in fiscal year 2011 compared to $886.3 million, or 26.5% of revenues for fiscal year 2010. The increase in SG&A expenses was primarily due to an increase in branding and other strategic initiatives, advertising, and performance based compensation, partially offset by reductions in depreciation and pension expense for fiscal year 2011. The decrease in the SG&A expense rate is primarily the result of the decrease in depreciation and pension expense, coupled with increasing revenues. Gain on sale of property and equipment. Gain on sale of property and equipment was $6.4 million for fiscal year 2011 compared to $2.0 million for fiscal year 2010. The fiscal year 2011 gain was primarily due to the $2.6 million of amortization of the deferred gain on the sale and leaseback of the Company's headquarters building located in Charlotte, NC, as well as $2.3 million for gains on the sale of three former retail locations. The fiscal year 2010 gain was primarily due to the $2.6 million of amortization of the deferred gain on the sale and leaseback of the Company's headquarters building located in Charlotte, NC, offset by a $0.6 million loss on the abandonment of property and equipment. Asset Impairment and Exit Costs. In fiscal year 2011, the Company recorded $5.9 million in asset impairment charges primarily to adjust two retail locations' net book values to fair value. The Company determines fair value of its retail locations primarily based on the present value of future cash flows. The Company also recorded a $3.5 million charge for real estate holding costs, offset by a $3.5 million revision to a previously estimated lease buyout reserve. In fiscal year 2010, the Company recorded $38.5 million in impairment charges primarily to adjust eight retail locations' net book values to fair value, a $1.0 million charge for real estate holding costs and other store closing costs, and $0.4 million in exit costs comprised primarily of severance costs associated with the outsourcing of certain information technology functions. Pension curtailment charge. A one-time pension curtailment charge of $2.7 million in the third quarter of fiscal year 2010 resulted from the decision to freeze the Company's defined benefit plan, effective December 31, 2009, for those remaining participants whose benefits were not previously frozen in fiscal year 2006. Interest Expense. In fiscal year 2011, the Company's interest expense decreased $0.6 million to $50.7 million from $51.3 million for fiscal year 2010. The decrease was primarily due to weighted average interest rates being lower in fiscal year 2011 compared to fiscal year 2010, and a $150.0 million net decrease in longterm debt excluding capital leases during fiscal year 2011. Interest Income. In fiscal year 2011, the Company's interest income decreased $0.5 million, or 44.6%, to $0.6 million from $1.0 million in fiscal year 2010. The decrease was primarily due to significantly lower market interest rates in fiscal year 2011 as compared to fiscal year 2010. 14 Income tax expense. Income tax expense for fiscal year 2011 was $68.2 million, or 34.8%, compared to $30.1 million, or 30.9%, for the same period in fiscal year 2010. The effective tax rate increased primarily as a result of lower corporate owned life insurance income and charitable stock contributions for fiscal year 2011, coupled with a $98.7 million increase in income before income taxes. Seasonality and Quarterly Fluctuations Due to the seasonal nature of the retail business, the Company has historically experienced and expects to continue to experience seasonal fluctuations in its revenues, operating income and net income. A disproportionate amount of the Company's revenues and a substantial amount of operating and net income are realized during the fourth quarter, which includes the holiday selling season. If for any reason the Company's revenues were below seasonal norms during the fourth quarter, the Company's annual results of operations could be adversely affected. The Company's inventory levels generally reach their highest levels in anticipation of increased revenues during these months. The following table illustrates the seasonality of revenues by quarter as a percentage of the full year for the fiscal years indicated. 2012 First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 2010 22.9% 22.5 21.4 33.2 22.9% 22.4 21.2 33.5 22.7% 22.7 21.8 32.8 The Company's quarterly results of operations could also fluctuate significantly as a result of a variety of factors, including the timing of new store openings, expansions and remodels. Liquidity and Capital Resources The Company's primary sources of liquidity are cash on hand of $456.3 million as of January 28, 2012, cash flows from operations, and borrowings under debt facilities, which consist of a $350.0 million credit facility, $475.0 million in senior notes, and a $17.8 million state bond facility. The credit facility, which matures in November 2015, allows for up to $250.0 million of outstanding letters of credit. The credit facility charges interest based upon certain Company financial ratios and the interest spread was calculated at January 28, 2012 using LIBOR plus 150 basis points, or 1.80%. The credit facility contains restrictive covenants including leverage and fixed charge coverage ratios. The Company's calculated leverage ratio dictates the LIBOR spread that will be charged on outstanding borrowings in the subsequent quarter. The leverage ratio is calculated by dividing adjusted debt, which is the sum of the Company's outstanding debt and rent expense multiplied by a factor of eight, by pre-tax income plus net interest expense and non-cash items, such as depreciation, amortization, and impairment expense. At January 28, 2012, the maximum leverage covenant ratio allowed under the credit facility was 4.0, and the calculated leverage ratio was 2.15. The Company was in compliance with all covenants as of January 28, 2012 and expects to remain in compliance with all debt covenants for the next twelve months and foreseeable future. As of January 28, 2012, the Company had $37.4 million of standby letters of credit outstanding under the credit facility, and availability under the credit facility was $312.6 million. On January 25, 2012, the Company made a $125.0 million discretionary payment to extinguish the term loan outstanding under the credit facility, utilizing $25.0 million of cash on hand, and $100.0 million from 5.21% fixed rate, 10-year notes issued by the Company on January 25, 2012. In connection with the debt extinguishment, the Company expensed unamortized fees of $0.9 million related to the term loan and recognized this charge as a loss on extinguishment of debt in the consolidated statement of income. 15 The senior notes have restrictive covenants that are similar to the Company's credit facility, and had the following terms as of January 28, 2012: Amount (in millions) $ 80.0(a) 20.0 100.0 125.0 50.0 100.0 Type of Rate Rate Variable Fixed Fixed Fixed Fixed Fixed 1.38%(b) 5.05% 5.31% 6.20% 5.70% 5.21% Maturity Date July 2012 July 2012 July 2015 August 2017 November 2020 January 2022 $475.0 (a) The Company's exposure to derivative instruments was limited to one interest rate swap as of January 28, 2012, an $80.0 million notional amount swap, which has a fixed interest rate of 5.2% and expires in fiscal year 2013. It has been designated as a cash flow hedge against variability in future interest rate payments on the $80.0 million floating rate senior note. (b) Stated variable interest rate is based on three-month LIBOR plus 80.0 basis points. Additionally, the Company has a $17.8 million, 20-year variable rate, 0.20% at January 28, 2012, state bond facility which matures in October 2025. The debt facilities place certain restrictions on mergers, consolidations, acquisitions, sales of assets, indebtedness, transactions with affiliates, leases, liens, investments, dividends and distributions, exchange and issuance of capital stock and guarantees, and require maintenance of minimum financial ratios, which include a leverage ratio, consolidated debt to consolidated capitalization ratio and a fixed charge coverage ratio. These ratios are calculated exclusive of non-cash charges, such as fixed asset, goodwill and other intangible asset impairments. The Company utilizes derivative financial instruments (interest rate swap agreements) to manage the interest rate risk associated with its borrowings. The Company has not historically traded, and does not anticipate prospectively trading, in derivatives. These swap agreements are used to reduce the potential impact of increases in interest rates on variable rate debt. The difference between the fixed rate leg and the variable rate leg of the swap, to be paid or received, is accrued and recognized as an adjustment to interest expense. Additionally, the change in the fair value of a swap designated as a cash flow hedge is marked to market through accumulated other comprehensive income. Management believes that cash on hand of $456.3 million as of January 28, 2012, cash flows from operations and existing credit facilities will be sufficient to cover working capital needs, stock repurchases, dividends, capital expenditures, pension contributions and debt service requirements for the next twelve months and foreseeable future. The Company has planned investments totaling approximately $600 million over a five-year period that began in fiscal year 2011 for key strategic initiatives including store improvements; information technology; eCommerce; branding, marketing and advertising; merchandise planning and processes; improved sourcing practices; and customer care. Net cash provided by operating activities was $251.9 million for fiscal year 2012 compared to $189.2 million for fiscal year 2011. The increase in cash provided by operating activities for fiscal year 2012 was principally due to a $55.5 million increase in net income for the current period, a $33.8 million decrease in income taxes paid in fiscal year 2012 primarily as a result of higher estimated tax payments made during fiscal year 2011, partially offset by the increase in inventory to support current sales trends. Net cash used by investing activities increased $61.2 million to $134.9 million for fiscal year 2012 from $73.8 million for fiscal year 2011. The increase in cash used by investing activities primarily resulted from increased purchases of property and equipment of $61.4 million. 16 The Company's capital expenditures of $143.8 million during fiscal year 2012 were comprised primarily of amounts related to store remodeling and expansion projects, as well as eCommerce and information technology enhancements. The Company has increased the amount of its anticipated capital expenditures for fiscal year 2013 primarily due to information technology and eCommerce enhancements. Net cash used by financing activities decreased $133.9 million to $114.1 million for fiscal year 2012 from $248.0 million for fiscal year 2011. The decrease in cash used by financing activities primarily relates to the $100.0 million issuance of fixed rate notes, a $75.0 million decrease in discretionary payments made on amounts outstanding under the credit facility, and a $13.0 million decrease in dividends paid. Contractual Obligations and Commercial Commitments To facilitate an understanding of the Company's contractual obligations and commercial commitments, the following data is provided: Total Payments Due by Period Within 1 Year 1 - 3 Years 3 - 5 Years (dollars in thousands) Contractual Obligations Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . $ 492,780 $100,000 Estimated Interest Payments on Debt(a) . . . . . . . . 152,614 25,617 Capital Lease Obligations . . . . . . . . . . . . . . . . . . . 30,899 8,164 Operating Leases(b) . . . . . . . . . . . . . . . . . . . . . . . . 528,938 71,469 Purchase Obligations(c) . . . . . . . . . . . . . . . . . . . . . 138,969 71,724 Total Contractual Cash Obligations . . . . . . . . . . . . $1,344,200 $276,974 After 5 Years $ 44,714 14,970 123,107 55,306 $100,000 36,023 5,402 89,672 11,939 $292,780 46,260 2,363 244,690 $238,097 $243,036 $586,093 Amount of Commitment Expiration per Period Total Amounts Within Committed 1 Year 1 - 3 Years 3 - 5 Years After 5 Years (dollars in thousands) Other Commercial Commitments Standby Letters of Credit . . . . . . . . . . . . . . . . . . . . $ Import Letters of Credit . . . . . . . . . . . . . . . . . . . . . 37,376 $ 37,376 $ 1,967 1,967 $ $ Total Commercial Commitments . . . . . . . . . . . . . 39,343 $ $ $ 39,343 $ $ (a) Interest rates used to compute estimated interest payments utilize the stated rate for fixed rate debt and projected interest rates for variable rate debt. Projected rates range from 1.80% to 5.96% over the term of the variable rate debt agreements. (b) Lease payments consist of base rent only and do not include amounts for percentage rents, real estate taxes, insurance and other expenses related to those locations. (c) Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Agreements that are cancelable without penalty, such as merchandise purchase orders, have been excluded. Purchase obligations relate primarily to purchases of property and equipment, information technology contracts, maintenance agreements and advertising contracts. Obligations under the deferred compensation and postretirement benefit plans are not included in the contractual obligations table. The Company's deferred compensation and postretirement plans are not funded in advance. Deferred compensation and other non-qualified plan payments during fiscal years 2012 and 2011 totaled $7.5 million each. Postretirement benefit payments during fiscal years 2012 and 2011 totaled $2.6 million each. 17 Obligations under the Company's defined benefit pension plan are not included in the contractual obligations table. Under the current requirements of the Pension Protection Act of 2006 (\"PPA\"), the Company is required to fund the net pension liability over the subs