29/09/11 6:08 PM DAVID JONES LIMITED ABN 75 000 074 573 ACN 000 074 573 JONES LIMITED ABN 75 000 074 573 ACN DAVID 201120112011201120112011201120112011

ANNUAL REPORT For personal use only use personal For

DAVID JONES ANNUAL REPORT 2011 For Corporate and Customer information please visit us at davidjones.com.au For DJ0813 Annual Report-R.indd 1 CONTENTS

Performance Analysis 1 GLOSSARY OF TERMS USED IN THE ANNUAL REPORT Chairman’s and Chief Executive Officer’s Report 2 AASB Australian Accounting Standards Board Five Year Financial Statistics 7 American Express American Express Australia Limited Board of Directors 8 ASX Australian Securities Exchange Management Committee 10 Board The Board of Directors of David Jones Limited Corporate Governance Statement 11 CAGR Compound Annual Growth Rate Corporate Sustainability Report 26 CEO Chief Executive Officer Directors’ Report 36 CODB Cost of Doing Business Remuneration Report 40 Company David Jones Limited Financial Statements 60 Corporations Act The Corporations Act 2001 (Cth) Directors’ Declaration 118 Consolidated Entity David Jones Limited and its controlled entities, Auditor’s Independent Declaration 119 as listed in note 29 to the financial statements Independent Audit Report 120 David Jones David Jones Limited Shareholder Information 122 DESP Deferred Employee Share Plan, as described in section 4 Corporate Directory 124 of the Remuneration Report DRP Dividend Reinvestment Plan EBIT Earnings Before Interest and Tax EC Employment Cost, as described in section 4 of the Remuneration Report EPS Earnings Per Share FY Financial Year IAS International Accounting Standards IASB International Accounting Standards Board IFRS International Financial Reporting Standards KMP Key Management Personnel, as described in section 2 of the Remuneration Report LTIFR Lost Time Injury Frequency Rate LTI Plan Long Term Incentive Plan, as described in section 4 of the Remuneration Report NPAT Net Profit After Tax OH&S Occupational Health and Safety STI Scheme Short Term Incentive Scheme, as described in section 4 of the Remuneration Report 2011 Annual General Meeting For personal use only use personal For Trust David Jones Incentive Plan Trust The Annual General Meeting will be held on TSR Total Shareholder Return, as described in section 4 Friday 2 December 2011 at 10.00 a.m. at the of the Remuneration Report Wesley Conference Centre, 220 Pitt Street, Sydney, New South Wales. The Notice of Meeting and Proxy Form are separate items accompanying this 2011 Annual Report.

David Jones Annual Report 2011 1 PERFORMANCE ANALYSIS

FY2011 FY2010* $m % of sales $m % of sales Sales 1,961.7 2,053.1 Gross Profit 767.3 39.1% 815.7 39.7% Cost of doing business 568.5 29.0% 610.9 29.8% Department Stores EBIT 198.8 10.1% 204.8 10.0% Financial Services EBIT 47.7 44.4 Total EBIT 246.5 12.6% 249.2 12.1%

NPAT 168.1 8.6% 170.8 8.3%

*Note: FY2010 was a 53-week year 47.7 44.4 † 41.3 5.24 2.098.0 2,053.1 38.4 5.04 4.99 1,985.5 1,983.2 1,961.7 4.88 36.1 4.72

07 08 09 10 11 07 08 09 10 11 07 08 09 10 11

Five year sales Sales per square metre Financial Services EBIT To tal sales ($ millions) ($ thousands) ($ millions) †Refinement of FY2009 to reflect monthly space availability for refurbishment work relating to the Bourke Street store 170.8 168.1 156.5 30 28 28 137.1 34.0 27 33.0 32.3 31.5 31.2 30.3 29.8 29.0 28.4 22 109.5 24.6

07 08 09 10 11 07 08 09 10 11 09 07 08 09 10 1109 07 08 09 10 11 09 For personal use only use personal For PreviousDividend AGAAP history Previous AGAAPEPS NPATPrevious AGAAP CODB (cents per share) (cps) ($ millions) (Percentage of sales) Earnings used refers to underlying earnings NPAT refers to underlying net profit after removing the one-off impacts of the after tax after removing the one-off profit from the sale of the Bourke Street impacts of the profit from the sale Home Store in FY2008 and the unwinding of the Bourke Street Home Store in of the Sale and Leaseback transaction in FY2008 and the unwinding of the FY2007, the full details of which are disclosed Sale and Leaseback transaction in in the Company’s Annual Report for the FY2007, the full details of which are relevant year. disclosed in the Company’s Annual Report for the relevant year.

David Jones Annual Report 2011 1 CHAIRMAN’S and chief executive officer’s REPORT

Robert Savage Chairman Paul Zahra Chief Executive Officer

This has been an extremely difficult year. As has been well documented in the media, consumer sentiment deteriorated Dear Shareholders, significantly in the second half of the 2011 financial year (particularly in the last few weeks of trading) and this has inevitably impacted On behalf of the Board and our Company’s financial performance, as has continued price deflation in a number of our product categories. management of David Jones Limited, According to a Westpac Banking Corporation and Melbourne we present our Company’s Annual Institute survey undertaken during the period 1 August to 6 August Report for the 2011 financial year 2011 Australian consumer sentiment has experienced its longest sustained decline, since the start of the global financial crisis in early ended 30 July 2011. To start, we thank 2008. you, our shareholders, for your support This decline in consumer sentiment and the resulting high levels throughout the year and for entrusting of personal savings have been influenced by: us with stewardship of the iconic – the Reserve Bank of Australia increasing interest rates seven times (in the period October 2009 to November 2010) to David Jones brand. one of the highest levels in the developed world; – natural disasters locally and abroad;

– financial uncertainty in Europe and the US; and For personal use only use personal For – significant declines in the equity markets.

David Jones Annual Report 2011 David Jones Annual Report 2011 2 3 In addition, a much stronger A$ has contributed to price deflation New Point of Sale System and encouraged spending offshore. We are progressing well with our new Point of Sale (POS) system. Within this environment the Company saw its total sales growth We are in the final stages of selecting a new POS solution, the (on an Adjusted Calendar Weeks Basis) rates drop from +1.2% roll-out of which is scheduled to occur from the second half of in 1Q11 to -10.3% in 4Q11 compared to the same periods in calendar 2012. The new POS system will improve our customers’ FY2010. This dramatic drop is unprecedented in the Company’s service experience and significantly reduce transaction time. In recent history. addition, our new POS system has multi-channel functionality and will play a pivotal role in the Company’s multi-channel strategy. In this environment our focus has been on: New stores 1. managing our costs and inventory (without impacting our customer service principles); and On 17 February 2011 we opened our new, redeveloped Claremont Quarter (WA) store with 85% more selling space. 2. investing in key areas of the business that will deliver growth David Jones is the only department store in the Claremont centre, and position the Company well in a changing retail environment. which is one of Australia’s most affluent catchments. We are pleased with the performance of this store since its re-opening. HIGHLIGHTS Despite the challenges facing our business over the past 12 months On 23 February 2011, we announced that we have entered into we made a conscious decision to invest in initiatives that would a 20 year Agreement for Lease to open a brand new, full-line secure our Company’s long term success. There have been a 14,000 square metre David Jones department store in Highpoint number of significant highlights that we are pleased to report. Shopping Centre in Victoria. The David Jones store will anchor These are summarised below. the development of a new fashion wing at the north-eastern end of the existing Highpoint shopping centre which will comprise Launching our online site approximately 100 new specialty stores and an additional 1000 It is our intention to be a major player in multi-channel retailing in car spaces. Construction of the Highpoint development the future and to provide our customers with the best shopping commenced in March 2011. The David Jones Highpoint store is experience and range of products regardless of which channel they expected to open for trade in the first quarter of calendar 2013 choose to shop from (i.e. online, in-store, mobile application or and generate Sales of $50–$60 million p.a. over time. a combination). The Company’s other new stores at Macquarie (NSW), Whitford With this in mind, on 4 November 2010 we launched our online (WA), Sunshine Plaza (Qld) and Pacific Fair (Qld) are expected to shopping site. Our online site commenced with just over 1,500 open in the period FY2014 – FY2016. products on offer and has been operating under a legacy IT system. National launch of new personal shopping service Since November 2010 the number of products on offer has been expanded to 2,500 products. We are currently developing new IT We believe it is important to inspire customers to shop with solutions to support our multi channel retail strategy. David Jones by continually refreshing and renewing our offering and customers’ shopping experience. On 1 August 2011, based Introduction of 90 exciting new brands on the success of the launch of this service in our Bourke Street In January and July 2011, we announced the introduction of 30 and Mall Melbourne store and international experience, we launched 60 new brands respectively across our Fashion, Beauty and Home a new Personal Shopping Service in our flagship CBD stores categories. The vast majority of these brands are department store in Sydney, Brisbane, Adelaide and Perth. The service, which is exclusive. Amongst the new brands are iconic international brands available by appointment only, has transformed customers’ retail Lanvin, Dries Van Noten, Hugo Boss Women, Hackett London, experience enabling them to shop assisted by their own personal GUCCI Jewellery, YSL Jewellery and new international designer shopping expert. brands such as Victoria Beckham, Lucy in Disguise by Lily Allen We have a strong service heritage and believe it is important to and Kardashian Kollection. continue to invest in and evolve customers’ service experience. We also continue to support Australian designers by adding new The new Personal Shopping Service enables time-poor customers premium Australian brands to our portfolio such as Lover, Bassike, to tap into the services of David Jones’ experts to select items Carl Kapp, Flannel, Little Joe, Megan Park, Rachel Ruddick, Lucette for either themselves or as gifts across the full range of our stores including Australian and international designers in categories such For personal use only use personal For and other notable Australian brands such as Dosh, Cheddar Pocket, Status Anxiety and Curtis Stone Cookware. as Fashion, Beauty and Home. By continually updating our brand portfolio and offering department store exclusive brands we are able to reinforce our position as Australia’s fashion authority and our “Home of Brands” strategy as a major differentiation from our competitors.

David Jones Annual Report 2011 David Jones Annual Report 2011 2 3 CHAIRMAN’S and chief executive officer’s REPORT

Launch of new brand campaign “Was. Is. Always David Jones” Employee Engagement On 3 August 2011 we launched our new brand campaign to Throughout FY2011 we have placed a strong focus on employee coincide with David Jones’ Spring/Summer 2011 Collections launch. engagement as we believe that this results in our staff being more The new brand campaign titled “Was. Is. Always, David Jones” engaged and more productive. Throughout the year we refreshed is an extension of our “There’s no other store like David Jones” our policies on Harassment, Discrimination and Resolution campaign and its position as the premier department store in Procedures and implemented face-to-face briefings with all Australia. In other words, David Jones: employees on our Code of Ethics and Conduct. Was like no other. We also launched our Employee Assistance Program and Is like no other. commenced a new leadership development training program for our senior managers. Always will be like no other store. We completed a company wide employee engagement survey and The campaign is designed to entice customers with freshness were very pleased with the results which showed that David Jones and newness. It includes vibrant new footage and leverages compares favourably against the Australian National Norm and the David Jones’ heritage and positioning as the fashion authority in Global Retail Norm in the areas of: Australian retailing. The cost of the campaign was funded from monies diverted from promotional advertising and resulted in – Ethics and integrity; no incremental spend. – Diversity and inclusion; New branded concept installations – Co-operation and collaboration; and Over the past 12 months we have successfully installed – Communication, feedback and openness of staff approximately 460 branded concept areas throughout our store and management. network. A further approximately 550 branded concept areas are scheduled for installation throughout FY2012. These new branded Customer service concept areas are important as they are expected to deliver Despite the sharp decline in sales in 4Q11, we have increased our incremental EBIT equivalent to 3–4 standard store refurbishments. investment in customer service initiatives in 1H12. In August 2011 70 new card member & customer events for example we increased our investment in frontline service hours as a relative proportion to sales. We are pleased to report that we have commenced the roll- out of 70 new customer and David Jones cardholder events and We are also introducing an increase in the quantum of payment promotions (in addition to our existing program). Examples include made under the “Reward and Recognition” incentive designed to ‘Girls Night Out’, Lunch with Maggie Beer, Flower Show VIP Night, encourage employees to drive sales and productivity. Bonus Points Promotions, 4-day Customer Shopping Event and the In addition, new training initiatives are being introduced for all Mercedes Benz Fashion Festival David Jones Event. floor staff regardless of tenure, which will focus on ensuring sales All of these are designed to reward our loyal customers, stimulate assistants are continually trained in delivering superior customer sales and promote use of the David Jones American Express card service and ensuring staff have the skills required to promote the and the David Jones store card. Company’s David Jones American Express card and store card.

Refurbishments Digital marketing & social media The refurbishment of our Bourke St Mall (Vic), Wollongong In May 2011 we launched our new Facebook and Twitter sites. (NSW) and Kotara (NSW) stores were all successfully completed Since then we have made good progress in the roll-out of our in FY2011. These stores are performing well despite the difficult digital marketing strategy. In August we launched a new “Fashion trading environment. Hub” to coincide with our Spring/Summer 2011 Collections launch. The Fashion Hub contains social and editorial content such as The refurbishments of our Chadstone (Vic) and Warringah Mall must have trends, latest collections, spring look books, exclusive (NSW) stores are on track to be completed in late September/ interviews with our ambassadors including Miranda Kerr. October this year in time for Christmas trading. These major upgrades are expected to deliver incremental EBIT in FY2012 We are on track to launch its new mobile website. In the initial

equivalent to two new stores as a result of the substantial increase stages this site will include David Jones catalogues and offers, For personal use only use personal For in selling space that they will deliver, the reallocation of space ‘JoinUs/Follow Us’ links for Facebook and Twitter, Stores Directory to higher margin categories and the addition of 250 new and a ‘What’s On’ section. branded installations.

David Jones Annual Report 2011 David Jones Annual Report 2011 4 5 The Rose Clinic national roll-out Abs Household Savings Chart The Company is planning to roll-out its Rose Clinic (which From the Dec 09 quarter to the Mar 11 quarter, household savings increased provides free breast screening services) across all of its national by over 50% reaching levels that are now higher than those experienced CBD flagship stores. To date Rose Clinics have been operating during the GFC in the David Jones Elizabeth St (NSW) and Bourke St Mall (Vic) Savings per household increased by over 50% This equates to a stores. On 16 September a new Rose Clinic was launched in from Dec 09 to Mar 11 savings rate of 11.5% 3,500 surpassing GFC levels the Company’s Queens Plaza (Qld) store with plans for further 3,000 $2,886 ? Clinics to be opened in the Perth and Adelaide CBD stores over $2,725 the next three years. In addition to supporting the Company’s 2,500 philanthropic strategy the Clinics also help drive foot traffic into 2,000 $1,821 David Jones’ stores. 1,500 1,000 Extended trading Hours 500 Mar 00 to Dec 08 average of $348 Throughout FY2011 we increased our trading hours nationally to 0 enable customers to shop when they want. The results of this have 00 01 02 03 04 05 06 07 08 09 10 11 -500 been pleasing and as a result we are continuing this initiative (within -1,000 the boundaries set by each States’ legislation) throughout FY2012. Source: ABS 5206 Table 3 Household Savings per Quarter – Mar ‘00 to Mar ’11 FY2011 FINANCIAL PERFORMANCE ($ per household; Quarterly) FromThese the Dec factors 09 quarter haveto the Mar directly 11 quarter, household impacted savings increasedour trading by and From a financial perspective, FY2011 was a challenging year for over 50% reaching levels that are now higher than those experienced during the GFC Source:financial ABS 5206 performance. Ta ble 3 the retail sector. As can be seen from the Westpac Consumer Sentiment Index graph below, we experienced a dramatic David Jones’ sales revenue for the year was $1,961.7 million, deterioration in consumer confidence in 2011. down 4.4% on FY2010. Earnings before interest and tax (EBIT) in FY2011 was Westpac Consumer Sentiment Index 2011 $246.5 million, down 1.1% on FY2010 ($249.2 million). Consumer sentiment has declined over the past two years The Company’s total ‘PAT to sales ratio’ for FY2011 was 125 up 30 basis points (bp) (8.6% FY2011 vs. 8.3% FY2010). 120 The Company’s financial services business reported growth 115 of 7.5% in EBIT to $47.7 million in FY2011 from $44.4 million 110 in FY2010. 105 The total cost of doing business (CODB) percentage for 100 FY2011 was 29.0%, an improvement of 80 basis points on the 95 FY2010 CODB percentage (29.8%). This performance reflects the Company’s strong cost efficiency focus. We have a further 90 14 cost efficiency projects, which are on track to be implemented 85 in FY2012. Looking beyond FY2012, management has identified a 80 number of other cost efficiency initiatives that will form part of the Jul Oct Jan Apr Jul Oct Jan Apr Jul 09 09 10 10 10 10 11 11 11 Company’s FY2013 – FY2016 Strategic Plan. Source: RBA (Indicators of Spending and Confidence, Westpac Consumer Gross profit percentage for FY2011 was down 60 bp on FY2010, SentimentWestpac Index), Consumer Jul 2011 Sentiment Index 2011 Consumer sentiment has declined over the past two years delivering a full year result of 39.1%. This is the result of discounting InSource: addition RBA (Indicato as canrs of be Spending seen and from Confidence the Australian, Westpac Consumer Bureau Sentiment of Statistics Index), Jul 2011 in a very competitive environment and dealing with excess chart below, household savings have increased by more than 50% Inventory due to the unprecedented sales decline in June and July from the December 2009 quarter to the March 2011 quarter. 2011, as was reported by the Company in July and August 2011. Saving levels in Australia today are higher than those experienced Capital expenditure (Capex) in FY2011 was $81.5 million during the global financial crisis. reflecting the Company’s investment in its new Claremont

For personal use only use personal For Quarter (WA) store, its Chadstone (Vic), Warringah Mall (NSW), Wollongong (NSW) and Kotara (NSW) store refurbishments and the completion of the Bourke Street Mall (Vic) redevelopment in August 2010.

David Jones Annual Report 2011 David Jones Annual Report 2011 4 5 CHAIRMAN’S and chief executive officer’s REPORT

The Company’s year-end inventory position in FY2011 is 2.3% David Jones’ support of victims of the Queensland floods earlier this higher than FY2010. Management continues to work diligently on year as well as the roll-out of our Rose Clinics nationally is evidence clearing excess Inventory during FY2012. of the importance our Company places on corporate social responsibility and being an upstanding corporate citizen. David Jones continued its track record of delivering free cashflow but was adversely impacted in late FY2011 by the downturn in Pages 11 to 25 of the Annual Report set out details of our sales causing an increase in working capital. Despite FY2011 capital Company’s corporate governance policies and practices and should expenditure being $81.5m, our cashflows remain solid with free assist shareholders in appreciating the importance that the Board cashflow of $100.9 million in FY2011. places on corporate governance issues. Pages 30 to 31 outline our commitment to the community and pages 32 to 35 set out our DEBT POSITION OH&S report for the year. David Jones’ net debt is $120.2 million. The Company’s gearing is 13.3%, which is low compared to most companies in the ASX100. CONCLUSION Despite the immediate trading challenges we are facing, we are EMPLOYEES excited about David Jones’ future. Our Company is working to We would like to take this opportunity to express thanks to each become a successful multi-channel retailer and we have over of our employees for their hard work and commitment throughout the past 12 months invested in many initiatives that will deliver FY2011 and to recognise their outstanding contribution during what sustainable long term growth for our business and will generate sales has been a very difficult year. in ways other than through constant discounting.

SUPPLIER PARTNERS We have a good business model, a strong balance sheet, low debt and solid cashflows which means we are well positioned to trade We would also like to take the opportunity to thank our through the current challenging environment and deliver shareholder suppliers (both existing and new additions to our portfolio). Our value over time. suppliers are an integral part of our “Home of Brands” strategy, which differentiates David Jones from its competitors. We are Management is currently working on the development of a committed to nurturing and strengthening our relationship with comprehensive FY2013 – FY2016 Strategic Plan which it will each of our suppliers. disclose to the market at a separate briefing session in 2012. We look forward to continuing to work closely with our suppliers We are continuing to tightly manage our costs and have made good in the year ahead, in a spirit of co-operation and mutual benefit. progress in reducing our inventory levels. We are on schedule to roll-out our new POS system from the second half of calendar 2012 CUSTOMERS as well as implement a new IT solution to enable us to successfully Last but not least we would like to thank all of David Jones’ position ourselves as a multi-channel retailer. customers for their patronage and support throughout the year. Looking forward, management and the Board believe that We are proud of our service heritage and strive to continuously despite the current difficult trading environment, our Company has uphold service excellence levels. many excellent initiatives on foot, which will hold us in good stead in DIVIDENDS the future. The Board has declared a fully franked dividend of 15 cps for 2H11. Our vision is that David Jones will bring the best branded multi- channel department store shopping experience to everyone we Added to the fully franked dividend of 13 cps declared for the first serve, every time. half of the 2011 financial year, this takes the totaldividend declared for the year to 28 cps, fully franked. This represents a payout ratio We are genuinely excited about the opportunities that lie ahead of 86.2%. over the next few years. The Board and the management team remain committed to the We thank you, our shareholders, for your support. Company’s dividend payout policy of not less than 85% of PAT. We look forward to reporting back to you in 12 months. CORPORATE GOVERNANCE, COMMUNITY AND OCCUPATIONAL HEALTH & SAFETY

For personal use only use personal For On a number of occasions in the past, the Board has stressed the crucial role that it believes public company boards must play if high corporate governance standards are to be upheld. This continues to be a key area of focus, as is our Company’s role in the broader community and our commitment to high standards of OH&S. Robert Savage Paul Zahra CHAIRMAN CHIEF EXECUTIVE OFFICER

David Jones Annual Report 2011 David Jones Annual Report 2011 6 7 FIVE YEAR FINANCIAL STATISTICS

2011 20103 20092 20081 20071 $000 $000 $000 $000 $000

SALES AND PROFIT Sales 1,961,744 2,053,087 1,985,490 2,097,999 1,983,220 Gross Profit 767,269 815,729 786,146 829,772 779,846 – % of sales 39.1% 39.7% 39.6% 39.5% 39.3% Retail Contribution 198,762 204,798 184,377 174,560 139,945 Financial Services EBIT 47,707 44,379 41,274 38,385 36,114 EBIT 246,469 249,177 225,651 212,945 176,060 NPAT 168,139 170,766 156,522 137,056 109,513

BALANCE SHEET Inventory 288,850 282,346 244,843 257,288 280,281 Other current assets 38,251 45,738 45,503 486,384 578,078 Property, plant & equipment 798,416 761,565 724,080 670,687 666,169 Other non-current assets 89,033 105,272 110,248 112,743 110,115 Total Assets 1,214,550 1,194,921 1,124,674 1,527,102 1,634,643 Payables 216,429 244,529 244,102 274,608 265,972 Provisions 32,910 47,420 58,905 61,635 71,885 Interest-bearing liabilities 131,943 103,945 101,870 512,360 719,994 Other liabilities 47,788 54,789 34,955 61,252 63,496 Total Liabilities 429,070 450,683 439,832 909,855 1,121,347 NET ASSETS 785,480 744,238 684,842 617,247 513,296

RATIOS EBIT to Sales (%) 12.6% 12.1% 11.4% 10.2% 8.9% Basic earnings per share (cents) 33.0 34.0 31.5 28.4 24.6 Dividends per share (cents) 28.0 30.0 28.0 27.0 22.0 Debt to equity (%) 16.8% 14.0% 14.8% 82.7% 140.3% Return on shareholder equity (%) 21.4% 22.9% 22.9% 22.2% 21.3% 1 Adjusted for the removal of the one-off impacts of the profit from the sale of the Bourke Street Home Store in FY2008 and the unwinding of the Sale and Leaseback transaction in FY2007, the full details of which are disclosed in the Company’s Annual Report for the relevant year 2 Restated in respect of amendment to AASB 138

3 FY2010 was a 53 week period For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 6 7 BOARD OF DIRECTORS

ROBERT SAVAGE External Directorships Chairman and Director of Perpetual Trustees Australia Limited; and AM Director of Fairfax Media Limited. Resident of Sydney Skills, experience and expertise Mr Savage has been a non-executive director for 12 years Term of office across a wide range of industries and has held several roles including on Audit and Remuneration Non-Executive Director and Nominations Committees. Prior to his appointment at David Jones, Mr Savage had extensive since 25 October 1999 business experience gained during a 35 year career with IBM in marketing, finance, software and appointed Chairman development and management roles. on 17 July 2003. During this period, he worked in Australia, throughout Asia and in the United States. Independent Yes Roles at IBM included the following: Managing Director and Chairman of IBM Australia; General Manager – Government for all of IBM’s business activity with governments throughout Asia Pacific and South Asia; and Chairman and Chief Executive Officer of IBM Hong Kong, China and Taiwan. Mr Savage previously held the office of Chairman and Director of Perpetual Limited. Board committee membership Member of the Remuneration and Nominations Committee and Property Committee.

jOHN COATES External Directorships President, Australian Olympic Committee Inc; President, International AC LLB Council of Arbitration for Sport and Court of Arbitration for Sport; Non-executive Chairman, Resident of Sydney William Inglis & Son Limited; Member, Grant Samuel Advisory Board, IOC Executive Board and Sydney Olympic Park Authority. Term of office Non-Executive Director Skills, experience and expertise Mr Coates retired as a lawyer at the end of 2009. He has since 6 October 1995 served on various Commonwealth and State statutory authorities and his public company and and appointed Olympic board experience includes property development and investment, shopping centre and Deputy Chairman on funds management. Mr Coates plays an active role in advising and assisting senior executives in 14 October 2003. the implementation of the Company’s key legal, public and commercial relationships. Board committee membership Chairman of the Property Committee and Member of the Independent Yes Audit Committee.

PAUL ZAHRA External Directorships None Resident of Sydney Skills, experience and expertise Mr Zahra has 29 years experience in the Australian retail sector. He has held senior management roles across the retail sector including buying, stores, Term of office visual merchandising, supply chain, store refurbishments, customer service and operations. Executive (Managing) Mr Zahra joined David Jones Limited in 1998 as General Manager of Merchandise Services and Director and has since been a part of the Company’s management team for 13 years. He has spent more Chief Executive Officer than 10 years in strategic roles in other major Australian retail stores, including setting up the since 18 June 2010. Officeworks Superstores business and holding management roles at Target Australia. No Independent Board committee membership Executive Directors are not members of Board Committees but attend Committee meetings as required.

STEPHEN GODDARD External Directorships None BSc (Hons) MSc Skills, experience and expertise Mr Goddard has 27 years experience in the Australian Resident of Sydney retail sector across a broad range of areas including finance, strategic planning, merchandise, Term of office stores, logistics, supply chain and property. The vast majority of this time has been in senior Executive Director and management and strategic roles in major Australian department stores including 14 years at Finance Director since David Jones Limited and 13 years at Coles Myer Limited, which included his appointment as 3 February 2003. founding Managing Director of Officeworks in 1993. Mr Goddard brings to the Board extensive and broad ranging retail experience. Mr Goddard joined David Jones Limited in 1997 as Independent No Operations Director. He was appointed Chief Financial Officer in July 2001 and Finance Director in February 2003, and has played an integral role in rebuilding the financial performance of the Company in recent years. Board committee membership Executive Directors are not members of Board Committees

For personal use only use personal For but attend Committee meetings as required.

David Jones Annual Report 2011 David Jones Annual Report 2011 8 9 REGINALD CLAIRS External Directorships None. AO Skills, experience and expertise Prior to joining the Board of David Jones Limited, Mr Clairs Resident of Brisbane had a career of 33 years with Woolworths Limited, culminating as the Chief Executive Officer Term of office for 5 years to December 1998. During his career he gained valuable retail experience at state, Non-Executive Director national and international levels. The successful ‘Fresh Food People’ theme was developed during since 22 February 1999. his appointment as National Marketing Manager. Mr Clairs has also served on the boards of the Commonwealth Bank of Australia and C.I.E.S., an international retail organisation and has held Independent Yes several positions on industry bodies, including Chair of the Australian Supermarket Institute. Board committee membership Chairman of Remuneration and Nominations Committee.

JOHN HARVEY External Directorships Chairman and Director, Fed Square Pty Ltd and APN Funds LLB B.JURIS GRAD. Management Ltd; and Director, Templeton Global Growth Fund and Australian Infrastructure DIP ACC., FCA Fund Ltd and Australian Pacific Airports Corporation Ltd. Resident of Melbourne Skills, experience and expertise Mr Harvey has had a 26 year professional career with Term of office PricewaterhouseCoopers (which included a tenure as Chief Executive Officer in Australia and Non-Executive Director a member of the global board of PricewaterhouseCoopers). During this time, he provided since 8 October 2001. professional advisory and audit services to many multinational and Australian national companies, including retailers. Independent Yes He has also served on the boards of APN Property Group Ltd, Racting Victoria Limited, Opera Australia, Docklands Authority and the Board of Taxation. His experience provides the financial expertise necessary to chair the Audit Committee. Board committee membership Chairman of Audit Committee.

KATIE LAHEY External Directorships Managing Director Australasia of Korn/Ferry International (from BA (Hons) MBA 7 March 2011); Chairman, Carnival Australia, Chief Executive, Business Council of Australia Resident of Sydney (until 2 February 2011). Term of office Skills, experience and expertise In her Chief Executive roles in the public and private sectors, Non-Executive Director Ms Lahey has gained extensive experience in managing large complex organisations and achieving since 6 October 1995. significant change within these organisations. She has skills in general management, marketing, media, human resources management, finance and an extensive knowledge of the workings of Independent Yes government at all levels. Her practical hands-on experience has been supplemented with her academic achievements. Board Committee membership Member of Remunerations and Nominations Committee.

PETER MASON External Directorships Chairman, AMP Limited; Director, Singapore Telecommunications AM B.Com (Hons), Limited; Senior Advisor to UBS Investment Bank; Chairman, UBS Australia Foundation; Director, MBA, Honorary Doctorate University of New South Wales Foundation; Director, (Headspace) National Youth Mental of Business (UNSW) Health Foundation Ltd. Resident of Sydney Skills, experience and expertise Mr Mason has extensive experience as a director and chief Term of office executive officer in financial services in Australia and the United Kingdom, primarily in investment Non-Executive Director banking. Mr Mason has been a Director and Chairman of a number of public companies and since 28 November 2007. educational and charitable organisations. Mr Mason’s previous directorships include Chairman of JP Morgan Chase (Australia), Chairman of the Ord Minnett Group, Executive Chairman of Independent Yes Schroders Australia Limited, and Director of Mayne Group Limited. He has also been a Member of the Takeovers Panel. Board Committee Membership Member of the Audit Committee.

PHILIPPA STONE External Directorships None. BA LLB (Hons) Skills, experience and expertise Ms Stone has had extensive business and legal experience, and

Resident of Sydney is a corporate and commercial partner of a major law firm, Freehills. She specialises in corporate For personal use only use personal For Term of office governance, general corporate advice, equity capital markets and mergers and acquisitions. Non-Executive Director Ms Stone is recognised as a leading mergers and acquisitions and equity capital markets lawyer since 9 March 2010. by not only her peers but also the wider legal industry. She brings to the Board of David Jones Limited extensive experience in business and legal matters. She is a member of the Independent Yes Australian Securities Exchange’s Listing Appeals Tribunal and of the Law Council of Australia’s Corporations Committee. Board Committee membership Member of Audit Committee and Property Committee.

David Jones Annual Report 2011 David Jones Annual Report 2011 8 9 executive committee

paul zahra stephen goddard CATE DANIELS Chief Executive Officer Finance Director Group Executive Operations

SACHA LAING Patrick robinson karen mclachlan Group Executive Group Executive Group Executive Fashion and Beauty Home and Food Information Technology

Paula Bauchinger MATTHEW DURBIN BRETT RIDDINGTON Group Executive Group Executive Group Executive Human Resources Financial Services Marketing

The Executive Committee is currently comprised of eleven members all of whom are pictured on this page. The role of the Executive Committee is to implement group policy,

For personal use only use personal For manage corporate processes and review strategy and resources.

antony karp DAVID ROBINSON Group Executive Group Executive Retail Development Multichannel Strategy & Integration

David Jones Annual Report 2011 10 CORPORATE GOVERNANCE STATEMENT

1. INTRODUCTION 12 5. EXTERNAL AUDITOR INDEPENDENCE 18 2. DAVID JONES’ APPROACH TO CORPORATE 5.1 Approach to auditor independence GOVERNANCE 12 5.2 Certification of independence 5.3 Other monitoring of independence 2.1 Framework and approach to corporate governance 5.4 Prohibited non-audit services by the external auditor and responsibility 5.5 Attendance at Annual General Meeting 2.2 Compliance with the ASX Recommendations 6. OVERSEEING, MANAGING AND 3. THE BOARD OF DIRECTORS 12 CONTROLLING RISK 19 3.1 Membership and expertise of the Board 6.1 Approach to risk oversight, risk management and 3.2 Board role and responsibility internal control 3.3 Board size, composition and mix of skills 6.2 Risk management and internal control roles and responsibilities 3.4 The selection and role of the Chairman 6.3 Management and Executive declarations 3.5 Directors’ independence 3.6 Avoidance of conflicts of interest by a Director 7. REMUNERATION POLICIES AND PROCEDURES 20 3.7 Meetings of the Board and their conduct 7.1 Overview 3.8 Succession planning 7.2 STI Scheme 3.9 Review of performance 7.3 LTI Plan 3.10 Nomination and appointment of new Directors 3.11 Directors orientation and education 8. CORPORATE CONDUCT AND RESPONSIBILITY 21 3.12 Retirement and election of Directors 8.1 Approach to corporate conduct 3.13 Board access to information and advice 8.2 The David Jones Code of Ethics and Conduct 4. BOARD COMMITTEES 15 8.3 Compliance with the Code 8.4 Diversity 4.1 Board committees and membership 8.5 Share trading policy 4.2 Committee charters 8.6 Continuous disclosure and shareholder communication 4.3 Remuneration and Nominations Committee 8.7 Community and the environment 4.4 Audit Committee 4.5 Property Committee 9. ASX CORPORATE GOVERNANCE PRINCIPLES

AND RECOMMENDATIONS 24 For personal use only use personal For

David Jones Annual Report 2011 11 corporate governance statement

1 INTRODUCTION As detailed in this statement, David Jones considers that its This statement sets out the key corporate governance principles governance practices comply with the ASX Recommendations. adopted by the Directors in governing David Jones and reflects A checklist setting out each of the ASX Recommendations and the the corporate governance policies and procedures which applied location of the Company’s associated disclosure is shown on pages during the financial period ended 30 July 2011. The Company 24 to 25. continues to monitor and review its corporate governance policies This statement and copies of the Company’s policies, charters and procedures. and codes relevant to corporate governance are available on the Company’s website at www.davidjones.com.au, located in the 2 DAVID JONES’ APPROACH TO Corporate Governance section. CORPORATE GOVERNANCE 2.1 Framework and approach to corporate governance 3 THE BOARD OF DIRECTORS and responsibility 3.1 Membership and expertise of the Board The Board has the responsibility for ensuring David Jones is The Board has a broad range of relevant skills, experience properly managed so as to protect and enhance shareholders’ and expertise to meet its objectives. The composition of the interests in a manner that is consistent with the Company’s current Board with details of each Director’s term of office, skills, responsibility to meet its obligations to all stakeholders. qualifications, experience and special responsibilities is set out on For this reason, the Board is committed to maintaining the highest pages 8 to 9 of this Annual Report. standards of corporate governance across the David Jones 3.2 Board role and responsibility Consolidated Entity. The Board is responsible for protecting the rights and interests of The Board believes that corporate governance is about having a shareholders and is accountable to them for the management of set of values and behaviours that underpin the Company’s everyday David Jones. The Board Charter clearly defines the matters that activities – values and behaviours that ensure transparency, risk are reserved for the Board and those that the Board has delegated management, accountability, value creation, fair dealing and to management. protection of the interests of stakeholders. Consistent with this belief, the Board’s approach is to consider corporate governance In summary, the Board’s accountabilities and responsibilities include: within the broader framework of corporate responsibility and – setting the direction, financial objectives and goals regulatory oversight. for management; The Board has adopted practices as appropriate to ensure David – reviewing and approving the annual budget and strategic plan; Jones remains at the forefront in protecting stakeholder interests – monitoring management and financial performance against the which are consistent with the “Corporate Governance Principles Company’s financial objectives and goals; and Recommendations” (ASX Recommendations) published by the ASX Corporate Governance Council and the Corporations – reviewing and approving the strategic allocation of capital Act 2001 (Cth) (Corporations Act). including major capital projects and property leases; David Jones acknowledges and is supportive of amendments to – approving capital management initiatives and major the ASX Recommendations that the Company must report on for financing facilities; the 2012 financial year. The ASX Corporate Governance Council – evaluating the performance and determining the remuneration has encouraged companies to adopt an early transition to these of the Chief Executive Officer CEO( ), senior managers and the changes and as such, David Jones has made voluntary disclosure in Board (within the shareholder approved limit); this corporate governance statement. Full reporting in relation to – ensuring the appropriate risk management systems, internal diversity in accordance with the ASX Recommendations will be controls, reporting systems and compliance frameworks are in provided in the 2012 Annual Report. place and operating effectively; The Board’s approach to corporate governance is guided – ensuring there are plans and procedures for recruitment, training, by the principles and practices that are in stakeholders’ best remuneration and succession planning for senior managers; interests as well as ensuring full compliance with legal and regulatory requirements. – defining Board competencies, evaluating Board performance and

For personal use only use personal For planning Board succession; 2.2 Compliance with the ASX Recommendations – considering and approving David Jones’ interim and full year The ASX Listing Rules require listed companies to include in their financial statements; annual report a statement disclosing the extent to which they – selection, appointment and removal of the CEO; and have followed the ASX Recommendations in the reporting period. Listed companies must identify the recommendations that have not – ensuring there are appropriate standards of corporate been followed and provide reasons for the company’s decision. governance and ethical behaviour.

David Jones Annual Report 2011 David Jones Annual Report 2011 12 13 Responsibility for the day-to-day management and administration The current Deputy Chairman, John Coates, is an independent of David Jones is delegated by the Board to the CEO, assisted by Non-Executive Director appointed by the Board. He has been a the Executive Committee. Director of David Jones since October 1995, Deputy Chairman since October 2003 and is the Chairman of the Property The CEO manages David Jones in accordance with the strategy, Committee and a member of the Audit Committee. plans and delegations approved by the Board. The Board Charter is available in the Corporate Governance 3.5 Directors’ independence section of the David Jones website. It is the Board’s view that each of its Non-Executive Directors is independent. The Board has adopted specific principles in 3.3 Board size, composition and mix of skills relation to Non-Executive Directors’ independence in light of The Board determines its size and composition, subject to the limits the ASX Recommendations guide as to relationships that affect imposed by David Jones’ constitution, using the following principles: independence. A Non-Executive Director is considered to be independent where they are not a member of management and: – the Board is to be comprised of both executive and non- executive directors, with a majority of non-executive directors – not a substantial shareholder of David Jones or an officer of, or who satisfy the criteria for independence; otherwise associated directly with, a substantial shareholder of the Company; – the directors shall be from different backgrounds with complementary skills and experience; – within the last three years have not been employed in an executive capacity by David Jones or another David Jones – the chairman must be an independent non-executive director; Group member, or been a Director after ceasing to hold any – the same individual must not exercise the roles of chairman or such employment; deputy chairman and CEO; and – within the last three years have not been a principal of a material – all directors shall bring independent judgement to bear in professional adviser or material consultant to David Jones (or decision-making. another David Jones Group member), or a director, officer, In addition to a commitment to gender diversity, the Board is employee or consultant materially associated with the service dedicated to ensuring that its Directors continue to reflect a mix provided by a material professional adviser or material consultant of different backgrounds, knowledge, skills and experience in the to the Company; areas of retailing, financial services, property management and – not a material supplier or customer of David Jones or other development, marketing, human resources, information technology, David Jones Group member, or an officer of or otherwise finance and law. associated directly or indirectly with a material supplier or material customer; and David Jones’ Board currently comprises seven independent Non- Executive Directors (including the Chairman) and two Executive – have no material contractual relationship with David Jones or Directors being the CEO and Finance Director. another David Jones Group member other than as a Director of the Company. 3.4 The selection and role of the Chairman Materiality for these purposes is assessed on both qualitative and The Chairman is selected by the Board from the Non- quantitative bases having regard to the specific circumstances, executive Directors. including among other things the: The Chairman’s role includes: – strategic importance to David Jones’ business of the goods or – providing leadership to the Board and to David Jones; services purchased or supplied by David Jones; – ensuring efficient organisation and conduct of the Board; – nature of the goods and services; and – monitoring Board performance annually; – nature and value of the transaction to David Jones and the other third party to the transaction. – guiding the agenda and conduct of Board meetings; – promoting consultative and respectful relations between The Board has undertaken an assessment of the independence Directors, and between the Board and management; and of each of its Non-Executive Directors, and, as noted above, has formed the view that each of its Non-executive Directors – chairing shareholder meetings. For personal use only use personal For is independent. The current Chairman, Robert Savage, is an independent Non- Philippa Stone is a partner at Freehills, a law firm which provides Executive Director appointed by the Board. He has been a certain legal services to the Company. The legal services provided by Director of David Jones since October 1999, Chairman since July Freehills are not considered material having regard to the principles 2003 and is a member of the Remuneration and Nominations and above. The Board is satisfied that Ms Stone’s role with Freehills Property Committees. does not materially interfere with the independent exercise of her judgment as a Non-Executive Director of David Jones.

David Jones Annual Report 2011 David Jones Annual Report 2011 12 13 corporate governance statement

Peter Mason is the chairman of AMP Limited (AMP). The – the performance evaluation of the Board and Chairman is Company has five commercial leases with certain AMP subsidiaries. comprised of structured interviews, written surveys and from Peter Mason is not directly involved in any of these dealings on time to time involves assistance of an independent adviser; behalf of AMP. The Board is satisfied that Mr Mason’s role with – a self assessment process with respect to the Board’s overall AMP does not materially interfere with the independent exercise performance is undertaken by all Directors for review by the of his judgment as a Non-Executive Director of David Jones. Chairman, and an assessment of the Chairman is completed 3.6 Avoidance of conflicts of interest by a Director by the Deputy Chairman and other Directors. The review incorporates the performance of the Board as a whole relative In accordance with the Corporations Act, any Director with a to the Board Charter. During this process, any particular issues material personal interest in a matter being considered by the concerning the performance of individual Directors or Board Board must not be present when the matter is being considered Committees will also be raised; and may not vote on the matter. Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially – integral to the process is feedback from key stakeholders conflict with those of David Jones. The Board has developed and senior management which is obtained through an procedures to assist Directors to disclose potential conflicts of interview process; interest. Where a significant conflict exists, the Director concerned – the Chairman conveys the results of the performance evaluation declares their interests in those dealings to the Board and takes no process to each Director and the Board and these results form part in decisions or discussions relating to them. the basis of an action plan designed to address performance 3.7 Meetings of the Board and their conduct improvement opportunities; and The full Board currently holds not less than eight scheduled – on a three yearly basis, each Director completes a written meetings per year, plus strategy and other additional meetings survey scoring the individual performance and contribution of as necessary to address any specific significant matters that may each other Director as well as themselves. This information is arise. The agenda for scheduled Board meetings incorporates collated and the results are communicated by the Chairman to standing items including the CEO’s report, financial reports, Board each Director. Committee reports, strategic matters, governance and compliance. The evaluation of individual Board Committees is carried out as Executives are regularly involved in Board discussions and Directors and when needed. have other opportunities, including visits to stores and business functions, for contact with a wider group of employees. An independent review of the Board, its Committees and members is presently underway and is expected to be completed A meeting of Non-Executive Directors is also held on the same by November 2011. date as each scheduled Board meeting to discuss the operation of the Board and a range of other matters. The performance of Board Committees is discussed under section 4.2. The number of Board meetings, Non-Executive Directors’ meetings and Board Committee meetings held during the year is set out in (b) Senior executives the Directors’ Report on page 37 of this Annual Report. All senior executives joining the Company receive induction training which is tailored to their specific role. 3.8 Succession planning The Board plans succession of its own members in conjunction All induction training covers as a minimum the Company’s with the Remuneration and Nominations Committee, taking into organisational structure, history and financial position, its corporate account the mix of skills and experience, expertise and diversity policies, management strategies and delegations of authority. required and currently represented, and David Jones’ future All senior executives undergo a performance and development direction. The Board is also responsible for succession planning review on an annual basis. This appraisal process was completed in for the CEO, and for ensuring succession plans for the Finance 2010 in accordance with the process set out below: Director and other senior managers. – at the beginning of each financial year, each senior executive is 3.9 Review of performance given a set of key performance criteria against which they will be (a) The Board and Directors measured. This criteria includes both financial and non-financial performance measures; For personal use only use personal For The Board has in place formal processes to review its performance and that of its Chairman annually and the performance of its other – at the end of each financial year, all senior executives complete individual directors every three years. In line with the Company’s a self-assessment questionnaire prior to meeting with their continuous improvement focus, the performance evaluation manager to discuss their performance over the previous year; process of the Board has been benchmarked against the evaluation – upon completion of the performance appraisal meeting, each practices of Boards in other ASX listed companies. As a result, senior executive is given a numerical rating and a development the core elements of the evaluation process have been further plan is agreed by the parties. enhanced and are summarised below:

David Jones Annual Report 2011 David Jones Annual Report 2011 14 15 3.10 Nomination and appointment of new directors 4 BOARD COMMITTEES Recommendations for nominations of new directors are made by 4.1 Board committees and membership the Remuneration and Nominations Committee and considered To assist in the execution of its responsibilities, the Board has by the Board as a whole. in place three Board committees comprising a Remuneration The agreed process for the appointment of non-executive directors and Nominations Committee, an Audit Committee and a to the Board is reviewed at the time the need for a new director Property Committee. is identified or an existing Director is required to stand for re- Personnel and remuneration matters have been delegated to the election. The Remuneration and Nominations Committee reviews Remuneration and Nominations Committee for review. the range of skills, experience and expertise on the Board, identifies its needs and prepares a short-list of candidates with appropriate In general, the review of financial reporting, financial risk skills and experience. For the purpose of objectivity, the selection management, audit and compliance matters has been delegated to process is supported throughout by independent consultants. the Audit Committee (except in relation to material matters which are considered by the full Board). The Remuneration and Nominations Committee reviews and makes recommendations for Board approval in respect of the Property related matters have been delegated to the Property appointment, contract terms, and termination of the CEO. Committee for review and consideration due to the substantial documentation involved, and the detail and complexity of issues. It also provides the Board with the opportunity to review the appointment or termination of any executive reporting to the The members of the Remuneration and Nominations CEO, and the Company Secretary, prior to implementation. Committee are:

3.11 Directors orientation and education Reginald Clairs AO (Chairman) Katie Lahey Newly appointed Directors receive a tailored orientation Robert Savage AM program that aims to provide each director with a comprehensive understanding of all key aspects of David Jones. The members of the Audit Committee are: New Directors are provided with an information pack that John Harvey (Chairman) comprises governance policies, business information, Board and John Coates AC Committee charters, Board principles and key Company policies. Peter Mason AM Additionally, the new Director attends a series of structured Philippa Stone Executive Committee information sessions that are led by each The members of the Property Committee are: function’s Group Executive. John Coates AC (Chairman) Board meetings regularly include sessions on recent developments Robert Savage AM in governance and corporate matters and formal presentations by Philippa Stone industry and professional bodies. The Board also undertakes regular store visits and may request for meetings to be arranged with The qualifications of each member are set out on pages 8 to 9 of major shareholders and key suppliers. this Annual Report.

3.12 Retirement and election of Directors The number of Remuneration and Nominations Committee, Audit Committee and Property Committee meetings held during the The constitution of David Jones specifies that all Directors (with year is set out in the Directors’ Report on page 37 of this Annual the exception of the CEO) must retire from office no later than Report along with each member’s attendance. the third Annual General Meeting following their last election. Where eligible, a Director may stand for re-election. Other committees may be established from time to time to consider matters of special importance. 3.13 Board access to information and advice All Directors have unrestricted access to Company records and 4.2 Committee charters information and receive regular detailed financial and operational The roles and responsibilities of each Committee are set out reports from management to enable them to carry out their duties. in the Committee charters. Copies of the Committee charters

For personal use only use personal For are available in the Corporate Governance section of the The Board has adopted a formal policy whereby the Directors may, David Jones website. subject to the Chairman’s consent which may not be unreasonably withheld or delayed, individually or collectively obtain independent Each Committee is entitled to the resources and information it professional advice, at the expense of David Jones, in the requires, including direct access to employees and advisers. The furtherance of their duties as Directors of the Company. CEO, senior executives and certain other employees are invited to attend Committee meetings (subject to the overriding principle that no member of management will be directly involved in

David Jones Annual Report 2011 David Jones Annual Report 2011 14 15 corporate governance statement

deciding their own remuneration). All Directors receive copies – the review of, and recommendation to the Board on, whether of all Committee papers and meeting minutes, and can attend all an appropriate balance exists between fixed, short-term and Committee meetings. long-term incentive components of remuneration; Committee members are chosen for the skills, experience and – the review of, and recommendation to the Board on, the other qualities they bring to the Committees. nature and composition of short-term and long-term incentive arrangements with specific emphasis on senior executives As soon as possible following each Committee meeting, the Board reporting to the CEO; and is given a verbal report by the Committee Chairman. – the review and recommendation to the Board on any annual All matters determined by Committees are submitted to the payments to be made under any incentive arrangements. full Board as recommendations for Board decision. Minutes of Committee meetings are tabled at a subsequent Board meeting. The Committee’s responsibilities in connection with nominations include to: The performance of Committees is discussed and reviewed initially within each Committee and then reviewed as part of the – conduct searches for new Board members, including the CEO Board’s performance review in accordance with section 3.9. The and Finance Director, and recommend preferred candidates to performance of each member of the Committees is evaluated as the Board; part of the performance review of each Director. – recommend required Board competencies and the number and 4.3 Remuneration and Nominations Committee profiles of Directors; The role of the Remuneration and Nominations Committee is – assess from time to time the extent to which the required documented in a charter that has been approved by the Board competencies are represented on the Board; and is reviewed on an annual basis. – ensure that succession plans are in place to maintain the The Committee is comprised of three independent Non- required competencies, and the number and profiles of the Executive Directors. Board members; The objectives of the Committee are to assist the Board in – review succession plans for the CEO, Chairman and each of ensuring David Jones has: the Board sub committees’ chairmen as well as direct reports to the CEO; – a Board of effective composition, size and commitment to adequately discharge its responsibilities and duties; – assist the Chairman as required to evaluate the performance of the Board, its Committees, and individual members, including the – remuneration policies and practices that are aligned with performance of the CEO; David Jones’ strategy and objectives; and – make recommendations to the Board in relation to the – fair and responsible remuneration of Directors and appointment or separation of the Company Secretary or any executives, having regard to the performance of David direct reports to the CEO; Jones, the performance of the executives and the general remuneration environment. – ratify appointments to David Jones’ Executive Committee; and The Committee’s responsibilities in connection with – review and assess succession plans for executive positions remuneration include: reporting to the CEO. – the review and recommendation for shareholder approval The Committee has access to other Directors, members of senior of Non-Executive Director remuneration; management and specialist advisers as it may require. – the review of, and recommendation to the Board on, any The Committee has engaged external advisers during the year on annual payments to be made to Executive Directors under the matters of remuneration. All advisers are independent and were Company’s Short-Term Incentive (STI) Scheme and Long-Term engaged solely on the basis of their expertise in the relevant field. Incentive (LTI) Plan; 4.4 Audit Committee – the review of and recommendation to the Board on the The role of the Audit Committee is documented in a charter remuneration of the CEO and Finance Director, and the terms For personal use only use personal For that has been approved by the Board and is reviewed on an of their employment contracts; annual basis. – approval, on the recommendation of the CEO, of the remuneration of the members of the Executive Committee, including the terms of their employment contracts;

David Jones Annual Report 2011 David Jones Annual Report 2011 16 17 The objectives of the Audit Committee are to provide advice The Committee evaluates results and reports from those and assistance to the Board to: processes including: – safeguard the integrity of financial reporting; – the risk management and control system; – make timely and balanced disclosure; – the risk profile; – recognise and ensure risk is appropriately managed; and – results of independent risk reviews; – oversee and assess the effectiveness of the Company’s risk – risk reporting, and; management and internal control system. – regulatory compliance. The Audit Committee comprises four independent Non- Executive Directors and the Chairman of the Board sits on the (d) External audit Audit Committee in an ex officio capacity. The Committee has The Committee is responsible for making recommendations appropriate financial expertise and all members have a sound to the Board concerning the appointment of David Jones’ knowledge of the industry in which David Jones operates. The external auditor including remuneration and other terms of the Committee Chairman is a chartered accountant and was formerly auditor’s engagement. a registered company auditor, although he has never acted as an auditor of David Jones. The Committee reviews the performance of the external auditor and each half-year will review the independence of the external The CEO and Finance Director attend Audit Committee auditor including compliance with its policy covering the provision meetings. The external auditors, Corporate Risk Management and of non-audit services. Internal Audit Manager, Chairman of the Board and other senior executives attend Audit Committee meetings at the invitation of The external auditor meets directly with this Committee. The the Committee. Committee has the opportunity to meet with the external auditor without management being present and Committee members are This Committee has specific responsibility for the following. free to contact the external auditor at any time. (a) External financial reporting (e) Corporate risk management and internal audit The Committee reviews and recommends all aspects of external The Committee is responsible for making recommendations to financial reporting including: the Board concerning the appointment of David Jones’ General – accounting policies and principles and any changes to them; Manager, Corporate Risk Management and Audit Manager (CRM & A Manager) including remuneration and other terms of the CRM & – significant estimates and adjustments in the financial reports; A Manager’s engagement. The position of the CRM & A Manager is – compliance with related party disclosures; currently held by the General Counsel and Company Secretary. – discussion of half-year and full-year financial reports with The Committee reviews the performance of the CRM & A function. management, auditors and other advisers as appropriate, and the Each year, the Committee reviews the internal Risk Review plan adoption of those reports by the Board; and recommends it to the Board for approval. – policies and procedures for the adoption of new accounting The Committee also monitors and reports to the Board on standards and pronouncements; and management’s responsiveness to internal Risk Review reports, – the integrity of David Jones’ written policies and procedures findings and any recommendations. designed to ensure continuous disclosure and accurate The CRM & A Manager reports directly to the Committee, financial reporting. except in respect of operational matters which are delegated (b) Related party transactions to the Finance Director, and members have the opportunity to meet with the CRM & A Manager without the presence of The Committee reviews, monitors and recommends for approval other management. by the Board any related party transactions. The effectiveness of the Audit Committee is periodically reviewed (c) Risk management and internal control by independent experts. The David Jones Board is responsible for overseeing the For personal use only use personal For establishment, implementation and ongoing effectiveness of the An external review of the effectiveness of the CRM & A function Company’s risk management and internal control system. The was conducted in 2009. Audit Committee provides advice and assistance to the Board in meeting that responsibility. The roles, responsibilities and processes established by management are described in the Risk Management and Internal Control Compliance and Control Systems Policy.

David Jones Annual Report 2011 David Jones Annual Report 2011 16 17 corporate governance statement

4.5 Property Committee 5.2 Certification of independence The role of the Property Committee is documented in a charter Each half-year the external auditor provides the Committee and that has been approved by the Board and is reviewed on an annual Board with an independence declaration certifying its continued basis. The objectives of the Committee are to assist the Board in: independence, and in particular confirming that it has not carried out any engagements during the year that would impair – undertaking full and adequate consideration of property related its professional independence as the auditor, as contemplated matters; and by the Corporations Act, and the APES110 Code of Ethics for – recommending actions on property related matters which are Professional Accountants issued by the Accounting Professional and aligned with David Jones’s strategy and objectives. Ethics Standards Board. The Property Committee comprises three independent Non- The external auditor is also required to confirm it will retain all Executive Directors of the Company. The Committee has working papers for the audit (or review) for a period of seven appropriate property expertise and all members have a sound years after the date of the audit report. knowledge of the industry in which David Jones operates. 5.3 Other monitoring of independence The responsibilities of the Property Committee include The Audit Committee will review and approve or decline, as the following: considered appropriate, before the engagement commences, any – to approve specific property initiatives within parameters individual engagement for non-audit related services involving fees previously agreed by the Board; exceeding or estimated to exceed $50,000. – to consider property issues of substantial complexity so as to No work will be awarded to the external auditor if the Committee facilitate more efficient debate on these issues; believes such work would be in contravention of the Corporations Act, give rise to a ‘self review threat’ (as defined in APES110 – to consider the high level property strategy information Code of Ethics for Professional Accountants) or create a conflict, produced by management and which relate to broader issues or perceived conflict of interest, for the external auditor or any of company strategy, including cash flow management by year, member of the audit team. lease terms and conditions and property ownership, prior to consideration by the Board; and Further, if, in the view of the Committee, the level of fees for non-audit related services being provided by the external auditors – to ensure that the Company adopts a consistent is of a magnitude that could impair, or be perceived to impair, the approach to decisions relating to all property matters and auditor’s independence, the Committee may, from time to time, associated documentation. impose a restriction on non-audit work being awarded to the 5 EXTERNAL AUDITOR INDEPENDENCE external auditor. 5.1 Approach to auditor independence The Committee receives half-yearly reports on audit related services undertaken and fees incurred, together with comparative David Jones’ Audit Committee has adopted a policy for external information for prior years, to assist in the monitoring of the auditor independence and the provision of non-audit related provision of such services. services to ensure best practice in financial and audit governance is maintained. The policy has been endorsed by the Board. David Jones requires rotation of a person who plays a significant role in the external audit of the David Jones Group for five The fundamental principle of auditor independence reflected in the successive financial years or for five out of seven successive policy is that in order for the external auditor to be independent, financial years, with suitable succession planning to ensure a conflict of interest situation must not exist between David Jones consistency. A person who is rotated off the audit cannot play and the auditor. A conflict of interest situation would exist if the a significant role in the audit for at least two successive financial external auditor or a professional member of the audit team were years. An external audit partner rotation occurred in 2009. not capable of exercising objective and impartial judgement in relation to the conduct of the audit of David Jones. A former member or director of the external auditor who was directly involved in an audit of David Jones (or its controlled For the external auditor to be eligible to undertake any non- entities) cannot be appointed an officer (Director, Company audit related services, the external auditor must not as a result Secretary or senior manager) of David Jones during the two year of the assignments: For personal use only use personal For period following the former member’s or director’s resignation – create a mutual or conflicting interest with that of David Jones; from the external audit firm. – audit their own work; David Jones’ independent external auditor, Ernst & Young, was – act in a management capacity or as an employee; or appointed by shareholders at the 2003 Annual General Meeting. – act as an advocate for David Jones. An analysis of the fees paid to the external auditors is provided in note 26 on page 94 of this Annual Report.

David Jones Annual Report 2011 David Jones Annual Report 2011 18 19 No fees were paid to Ernst & Young for non-audit services in the – financial reporting; 2011 financial year. – human resources, and 5.4 Prohibited non-audit services by the external auditor – market. No work carried out by an external auditor will be approved, and David Jones has an effective control environment to manage its the external auditor will not provide services, involving: material risks with the following components: – preparation of accounting records and financial statements; – comprehensive risk management framework; – information technology systems design and implementation; – clearly defined management responsibilities and – valuation services and other corporate finance activities; organisational structure; – internal audit services; or – delegated limits of authority defined by a Delegations Manual; – secondment of senior staff to act in a management capacity. – accounting control and reconciliations; 5.5 Attendance at the Annual General Meeting – strong management reporting systems; David Jones requires a partner of its external auditor to attend – disciplined budgeting and rolling five year strategic plan processes; its Annual General Meeting and be available to answer questions from shareholders about the audit. The audit partner from Ernst – regular internal review and mechanisms including the & Young attended the 2010 Annual General Meeting. operation of a Capex Committee, Marketing Forum and Executive Committee; David Jones ensures that written questions received from shareholders are given to the external auditor to be answered, – personnel requirements for key positions; along with any other questions put to the auditor at the Annual – segregation of duties; General Meeting. – physical and logical security over company assets; 6 OVERSEEING, MANAGING AND CONTROLLING RISK – appropriate policies and procedures that are widely disseminated 6.1 Approach to risk oversight, risk management and to, and understood by, employees; internal control – an independent corporate risk management and internal audit David Jones’ approach to risk oversight, risk management and function; and internal control has been developed and is consistent with recognised industry reference material and guidelines including – an independent external audit. the ASX Recommendations, “Risk Management Australia/New The risk categories identified above are interlinked and the control Zealand International Organisation for Standardisation (AS/NZ environment is integrated to manage those risks. ISO 31000:2009) Risk Management – Principles and Guidelines, and publications from The Committee of Sponsoring Organisations 6.2 Risk management and internal control roles from the Treadway Commission. and responsibilities The risk management process is designed to ensure material risks The Board is responsible for overseeing and assessing the are identified, assessed, mitigated through effective internal controls effectiveness of the Company’s risk management and internal and monitored to manage risk in the achievement of David Jones’ control system. The Audit Committee provides advice and business objectives. Material risks are those with significant areas of assistance to the Board in meeting that responsibility. uncertainty or exposure at an enterprise level that could have an David Jones’ management is responsible for and has implemented impact on the achievement of company objectives. The assessment a risk management and control system. The risk identification, includes threats and opportunities. David Jones considers risk in at analysis and mitigation process is documented in the Company’s least the following categories: Risk Profile. The process is designed to ensure material risks are – strategic; identified, assessed, mitigated through effective internal controls – brand; and monitored to minimise risk in the achievement of David Jones’ business objectives. – products or service quality; For personal use only use personal For The Risk Profile is reviewed and updated at least annually by the – operational; Audit Committee. The Risk Profile forms the basis of planning – sustainability; and conducting independent reviews by the internal Corporate – ethical conduct; Risk Management & Audit function or other independent experts to provide independent assurance over the operation of key – compliance; controls in place to address the material risks. External audit has – technology;

David Jones Annual Report 2011 David Jones Annual Report 2011 18 19 corporate governance statement

full access to the Risk Profile, results of the internal Corporate Non-Executive Directors may also be reimbursed for their Risk Management & Audit reviews, and results of any other expenses properly incurred as a Director, or in the course of their independent expert reviews. duties. The Non-Executive Directors do not participate in any other David Jones employee share plans nor its STI Scheme or The role of the Audit Committee in relation to risk management LTI Plan. is described in section 4.4. (b) Executive Directors and Senior Managers The David Jones’ Risk Management and Internal Compliance and Control Systems Policy, which forms part of the Audit Committee The Remuneration and Nominations Committee is responsible Charter, is available in the Corporate Governance section of the for recommending to the Board remuneration policies, fees, David Jones website. salaries and short and long-term incentives applicable to Executive Directors and senior managers of the Company. 6.3 Management and Executive declarations David Jones’ remuneration policies are designed to drive a Management reports to the Board as to the effectiveness of David performance culture and to ensure that the way in which Jones’ management of its material business risks. Management has employees are recognised and rewarded through remuneration provided assurance to the Board in regards to the Company’s is in the best interests of the shareholders, the Company and management of its material business risks. the individual. The CEO and the Finance Director have provided the a declaration The remuneration policies achieves this in the following ways: to the Board pursuant to section 295A of the Corporations Act in respect of the financial period ended 30 July 2011: – by applying a “pay for performance” philosophy which ensures executive remuneration is linked to both individual performance – David Jones’ financial statements and accompanying notes and Company performance; present a true and fair view of the David Jones Consolidated Entity’s financial position and performance, and comply with – by providing remuneration that is market competitive to relevant accounting standards; ensure David Jones has the ability to retain and motivate strong performing employees and attract high calibre prospective – the financial records of David Jones for the financial period employees; and ended 30 July 2011 have been properly maintained in accordance with section 286 of the Corporations Act; and – by undertaking an annual evaluation process on the performance of all executives, the results of which contribute to the – the statements referred to above paragraph are founded on determination of any salary adjustment an individual executive a sound system of risk management, internal compliance and may receive. control, that operated efficiently and effectively in all material respects in relation to financial reporting risks. As detailed in the Remuneration Report, the short and long- term incentive components of remuneration are determined 7 REMUNERATION POLICIES AND PROCEDURES with reference to external benchmarking and advice from independent experts. 7.1 Overview David Jones has established processes to ensure that the level The financial hurdles in the STI Scheme and LTI Plan are (as and composition of remuneration are sufficient, reasonable and applicable) determined through a structured budgeting and three explicitly linked to performance. These processes are described year planning process that requires full Board approval. below and on pages 40 to 59 in the Remuneration Report. Payments made under the STI Scheme and securities granted (a) Non-Executive Directors under the LTI Plan are audited or reviewed by the Company’s external auditors. The Remuneration and Nominations Committee is responsible for recommending to the Board fees applicable to Non- 7.2 STI Scheme Executive Directors. Under David Jones’ STI Scheme, the Executive Directors and In accordance with a resolution of shareholders at the 2008 Annual senior employees can earn a cash based payment which represents General Meeting, the maximum aggregate amount that is permitted a pre-determined percentage of their employment cost (which to be paid to Non-executive Directors under the David Jones is comprised of base salary and superannuation contributions). Payments under this scheme are dependent on the achievement

For personal use only use personal For constitution is $2.3 million per annum. of specific financial objectives relating to sales, gross profit, costs, Contributions to the retirement allowance plan for Non-Executive inventory management and profit after tax (as applicable to Directors (other than notional interest adjustments based on the the relevant position) with a key component also based on the retirement allowance balance) were discontinued in October 2004. assessment of personal performance. Since October 2003 no new Directors have been entitled to join this plan.

David Jones Annual Report 2011 David Jones Annual Report 2011 20 21 The Board intends that similar conditions will be imposed in future The Code governs workplace and human resource practices, risk financial years. Further details of the STI Scheme are provided on management and legal compliance, and is aligned to the David pages 44 to 45 in the Remuneration Report. Jones’ core values of teamwork, integrity and performance. The Code is reviewed periodically and has been amended to reflect the 7.3 LTI Plan ASX Recommendations. David Jones’ LTI Plan was introduced in 2001. Executive Directors In summary, the Code reflects the requirement to: and senior executives are eligible to participate in this plan. – uphold the reputation of David Jones with all stakeholders in terms Under this plan, eligible participants may be granted the right of quality, service, legal compliance and ethical conduct; to receive a certain number of ordinary shares in David Jones, which may vest, conditional on the achievement of performance – respect property and the ownership of that property; measures covering a three-year consecutive period. – maintain confidentiality and privacy of information; The Board has determined that the following performance – ensure equal opportunity for all employees; measures, which operate independently of each other, will be used to determine the entitlement of participants to receive shares – maintain a safe and healthy environment for customers and under this plan. The performance measures are: employees alike; – TSR (all LTI Plan offers); and – treat all employees in a fair and professional manner, ensuring the workplace is free from harassment, discrimination and bullying; – NPAT (FY2009 – FY2011 and FY2009 – FY2012 Retention Plans). – ensure business is conducted fairly, honestly and objectively, in ways that benefit David Jones’ stakeholders: shareholders, Depending on David Jones’ performance against these measures, customers, employees, suppliers and the communities in which a number of rights may vest in favour of participants, at which David Jones operates; time the participants will become beneficially entitled to, and enjoy the rights attaching to, ordinary shares, subject to the terms and – avoid (and disclose) situations or transactions which, or might be conditions of the plan. seen to, conflict with the interests of David Jones, including gifts and benefits from suppliers; If the performance conditions are not met within the performance period, the conditional entitlement to some or all of the rights – comply with the David Jones policy on trading in shares; and granted will lapse. In addition, special Retention Offers under – report and investigate instances of unethical behaviour. the LTI Plan were made to ensure the ongoing tenure of key employees in 2008 to secure the delivery of the Company’s Other responsibility policies and codes that operate in FY2009 – FY2012 strategy. Further details relating to the LTI Plan, David Jones include: including the Retention Offers, are provided on pages 45 to 50 in – Legal Compliance Manual; the Remuneration Report. – External Communications and Continuous Disclosure Policy; 8 CORPORATE CONDUCT AND RESPONSIBILITY – Risk Management Guidelines; 8.1 Approach to corporate conduct – Delegations Manual; To continue its tradition of excellence, David Jones must uphold the honest and transparent business practices that customers, – Treasury Policy; shareholders, suppliers and the community have come to expect. With this in mind, David Jones aims to maintain a high standard of – Capital Expenditure Policy; ethical business behaviour at all times and expects its Directors, – Share Trading Policy; and senior management, employees and contractors to treat others with fairness, honesty and respect. – Occupational Health and Safety, Equal Opportunity and other human resources policies. David Jones has a Code of Ethics and Conduct (Code), which has been provided to Directors, employees and contractors During the 2011 financial year, face to face Code of Ethics and and is available in the Corporate Governance section of the Conduct education sessions were delivered to over 9,000 David Jones employees. As part of these sessions, every employee was For personal use only use personal For David Jones website. re-issued with the Code and asked to formally acknowledge their 8.2 The David Jones Code of Ethics and Conduct understanding of and commitment to the Code at all times. The Code applies to all of the Company’s Directors, employees and contractors. The Code has been fully endorsed by the Board and is provided to all Directors, employees and contractors as part of their formal orientation process. Regular training in relation to the Code is undertaken by Directors, employees and contractors.

David Jones Annual Report 2011 David Jones Annual Report 2011 20 21 corporate governance statement

8.3 Compliance with the Code At David Jones, management positions make up 12.8% of the total David Jones is committed to promoting and maintaining a workforce, and of these management positions, 67.1% are held by culture of honest, ethical and law-abiding behaviour. To fulfil this women. Within our retail department stores, women hold 66.6% commitment, David Jones has processes in place to ensure that: of available management positions. – violations of the Code are detected and reported; and At the senior executive level, 3 out of 9, or 33%, of positions on the Company’s Executive Committee are held by women. – appropriate action is taken in response to any such violations. David Jones encourages Directors and employees to report There are currently 9 Directors on the David Jones Board, promptly, in good faith, any violations or suspected violations comprising 7 Non-Executive Directors and 2 Executive Directors. of this Code. All employees have the choice to access either an Women hold 2 positions on the Board, representing 22%. internal Code of Ethics Hotline or an independent ethics hotline. The Company is proud of its progress and achievements to date Employees are encouraged to use the hotlines and may do so on in promoting gender diversity throughout all levels of its workforce a confidential and anonymous basis. All reports are investigated and will continue to develop and implement initiatives in this area. promptly, confidentially and fairly without recrimination against the person reporting an incident. 8.5 Share Trading Policy The policy underlying these procedures ensures that employees are David Jones has a Share Trading Policy that complies with the not disadvantaged in any way for reporting violations of the Code requirements of ASX Listing Rule 12.12. This was lodged with the or other unethical conduct. ASX in 2010 and is available in the Corporate Governance section of its website. 8.4 Diversity Consistent with the legal prohibitions on insider trading, under (a) Promoting diversity and diversity initiatives the policy, all Directors, officers, members of senior management, Over the past year, there has been an increased focus on diversity other employees and consultants are prohibited from dealing in and on the work place and commercial benefits that may be David Jones securities while in possession of unpublished price derived by companies who succeed in fostering a culture of sensitive information about David Jones. Directors, officers, diversity. The Company is committed to pursuing a culture of members of senior management, other employees and consultants diversity. At David Jones the importance of supporting and valuing are also prohibited from dealing in David Jones securities: every employee is recognised, as is promoting an environment of acceptance and inclusion. – if in possession of price sensitive information; The Board is committed to ensuring that it, and the entire – trading for short-term gain; and David Jones workforce, comprises and attracts, diverse, talented – outside the following permitted trading periods: and motivated people. – within six weeks after the date of release of the Company’s half- The Company’s approach to diversity further demonstrates year and annual results to the ASX; and and promotes commitment to a culture that equally embraces gender, age, culture, religious beliefs, sexual orientation and family – the rights trading period when the Company has issued a responsibilities of our people. prospectus for those rights. In 2011 the “Our Say Your Future” employee survey also Other restrictions on trading covered by this policy include specific provided valuable insights to the Company’s diversity profile terms relating to the use of financial products to limit the risk and opportunities for enriching our culture further. The attaching to shares and other equity (that is, hedging) where that Company intends to use the insights from this survey to equity is granted as part of remuneration. develop and implement a number of initiatives aimed at further Directors, officers, members of senior management and other promoting an inclusive culture and an environment that values employees and consultants: individual differences. – are prohibited from entering into transactions in financial (b) Gender diversity products which operate to limit the economic risk of security The Board recognises the many benefits attributable to female holdings in the Company over unvested entitlements or vested representation in roles of leadership and influence, particularly given entitlements subject to a holding lock or restriction on dealing

For personal use only use personal For the Company’s predominantly female employee and customer base (known as restricted entitlements) including, without limitation, and gender diversity has and continues to be a key area of focus any hedging or similar arrangement in respect of unvested commitment across the Company. entitlements or restricted entitlements held or granted under any equity-based remuneration scheme; David Jones currently has a female dominated workforce, within which women comprise 79.5% of the Company’s permanent workforce staff.

David Jones Annual Report 2011 David Jones Annual Report 2011 22 23 – must advise the Company of any entry into, renewal of, A copy of the Continuous Disclosure Policy is available in the alteration of or closure of any hedging arrangement in respect Corporate Governance section of David Jones’ website. of vested and unrestricted security holdings in the Company (at Under this Policy, the Board will, as soon as it becomes aware the same time confirming that they are not in possession of any of information concerning David Jones that would be likely to unpublished price-sensitive information); have a material effect on the price or value of David Jones’ – are also prohibited from entering into any stock lending or other securities, ensure that the information is released to the Company similar arrangements in relation to their security holding in the Announcements office of the ASX. The Board has appointed a Company; and committee comprising the CEO, Finance Director and the General Manager – Investor Relations to continually monitor compliance – prohibited from dealing in the securities of outside companies and to ensure appropriate communications with the ASX through about which they may gain price sensitive information by virtue the office of the General Counsel and Company Secretary. of their position with David Jones. The Board aims to keep shareholders informed of all major The Company regards compliance with the Share Trading Policy developments affecting David Jones’ activities and its state of affairs. as fundamental. A breach of the Share Trading Policy (including The Board encourages full participation of shareholders at the a breach of the hedging policy described above) will be regarded Annual General Meeting to ensure a high level of accountability and as serious misconduct which may lead to disciplinary action identification with David Jones’ strategy and goals. The Company’s (including dismissal). senior management and auditors attend the Annual General David Jones requires that Directors must advise the Chairman, and Meeting to answer questions of shareholders as required. officers, members of senior management and consultants to advise All recent David Jones announcements, media briefings, details the Company Secretary or Chief Executive Officer of the following: of David Jones meetings, press releases, analyst presentations – a proposed trade in the Company’s shares, options or other and annual reports for the last five years and information on all securities prior to any trade and confirm they are not in corporate governance practices are placed on the David Jones’ possession of any unpublished price-sensitive information; website at www.davidjones.com.au. – any transaction or arrangement proposed to be entered into, The Company provides advanced notice to all major shareholders renewed, altered or closed out which may operate to limit the and analysts briefings. Such briefings can be attended in person economic risk of their vested and unrestricted security holdings or via telephone conference facilities. A register of all attendees in the Company and confirm they are not in possession of any at these briefings is maintained. In addition, a summary record is unpublished price-sensitive information; prepared for internal use of all issues discussed at briefings and one on one meetings with shareholders and analysts. – any margin loan arrangement proposed to be entered into in relation to security holdings in the Company; and David Jones’ Shareholder Communication Policy sets out the various means by which shareholders can obtain information about – any proposed transfer of Company securities into an existing the Company’s activities and engage actively with the Company margin loan account. and exercise their rights as shareholders in an informed manner. The ASX is notified of all relevant transactions involving securities A copy of the Shareholder Communication Policy is available in the conducted by Directors. Corporate Governance section of David Jones’ website.

8.6 Continuous disclosure and shareholder communication 8.7 Community and the environment David Jones is committed to: Information in relation to the Company’s approach to the environment and the community is set out on pages 30 to 35 – ensuring shareholders and the investment market are provided of the Annual Report. with full and timely information about its activities; – ensuring that all stakeholders have equal opportunity to receive externally available information issued by David Jones; and – complying with the continuous disclosure obligations contained in applicable ASX Listing Rules and the Corporations Act. For personal use only use personal For David Jones’ Continuous Disclosure Policy sets out David Jones’ commitment to comply with its continuous disclosure obligations.

David Jones Annual Report 2011 David Jones Annual Report 2011 22 23 corporate governance statement

9. ASX CORPORATE GOVERNANCE PRINCIPLES AND RECOMMENDATIONS ASX Principle and Recommendations Reference1 Compliance Principle 1 Lay solid foundations for management and oversight 1.1 Companies should establish the functions reserved to the board and those delegated 3.2 Comply to senior executives and disclose those functions. 1.2 Companies should disclose the process for evaluating the performance of 3.9 Comply senior executives. 1.3 Companies should provide the information indicated in the Guide to reporting 1.3.2 – 3.7, 3.9 Comply on Principle Principle 2 Structure the board to add value 2.1 A majority of the board should be independent directors. 3.3 Comply 2.2 The chair should be an independent director. 3.3, 3.4 Comply 2.3 The roles of chair and chief executive officer should not be exercised by the same 3.3 Comply individual. 2.4 The board should establish a nomination committee. 4.3 Comply 2.5 Companies should disclose the process for evaluating the performance of the board, 3.9, 4.2 Comply its committees and individual directors. 2.6 Companies should provide the information indicated in the Guide to reporting 3.1, 3.5, 3.9, 3.10, Comply on Principle 2. 3.13, 4.1, 4.2 Principle 3 Promote ethical and responsible decision-making 3.1 Companies should establish a code of conduct and disclose the code or a summary 8.1, 8.2, 8.3 Comply of the code as to: – the practices necessary to maintain confidence in the company’s integrity – the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders – the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. 3.2 Companies should establish a policy concerning diversity and disclose the policy 8.4 To be disclosed as or a summary of that policy. The policy should include requirements for the board required in 2012 to establish measurable objectives for achieving gender diversity and for the board to assess annually both the objectives and progress in achieving them. 3.3 Companies should disclose in each annual report the measurable objectives for 8.4 To be disclosed as achieving gender diversity set by the board in accordance with the diversity policy required in 2012 and progress toward achieving them. 3.4 Companies should disclose in each annual report the proportion of women in the 8.4 Comply whole organisation, women in senior executive positions and women on the board. 3.5 Companies should provide the information indicated in the Guide to reporting 8.1 – 8.4 Full compliance with on Principle 3. Guide to reporting on Principle 3 will be made as required

in 2012 For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 24 25 ASX Principle and Recommendations Reference1 Compliance Principle 4 Safeguard integrity in financial reporting 4.1 The board should establish an audit committee. 4.1, 4.4 Comply 4.2 The audit committee should be structured so that it: 4.1, 4.4 Comply – consists only of non-executive directors – consists of a majority of independent directors – is chaired by an independent chair, who is not chair of the board. – has at least three members. 4.3 The audit committee should have a formal charter. 4.2, 4.4 Comply 4.4 Companies should provide the information indicated in the Guide to reporting 4.1, 4.2 Comply on Principle 4. Principle 5 Make timely and balanced disclosure 5.1 Companies should establish written policies designed to ensure compliance with ASX 8.6 Comply Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies. 5.2 Companies should provide the information indicated in the Guide to reporting 8.6 Comply on Principle 5. Principle 6 Respect the rights of shareholders 6.1 Companies should design a communications policy for promoting effective Comply communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy. 6.2 Companies should provide the information indicated in the Guide to reporting Comply on Principle 6. Principle 7 Recognise and manage risk 7.1 Companies should establish policies for the oversight and management of material 6.1, 6.2 Comply business risks and disclose a summary of those policies. 7.2 The board should require management to design and implement the risk 6.2, 6.3 Comply management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks. 7.3 The board should disclose whether it has received assurance from the chief executive 6.3 Comply officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. 7.4 Companies should provide the information indicated in the Guide to reporting 6.2, 6.3 Comply on Principle 7. Principle 8 Remunerate fairly and responsibly 8.1 The board should establish a remuneration committee. 4.1, 4.3 Comply 8.2 The remuneration committee should be structured so that it: 4.1, 4.3 Comply – consists of a majority of independent directors – is chaired by an independent chair

– has at least three members. For personal use only use personal For 8.3 Companies should clearly distinguish the structure of non-executive directors’ 7 and Remun- Comply remuneration from that of executive directors and senior executives. eration Report 8.4 Companies should provide the information indicated in the Guide to reporting 4.1, 4.3, 7.1, 8.5 Comply on Principle 8. 1 References to section numbers refer to the relevant sections of this Corporate Governance Statement.

David Jones Annual Report 2011 David Jones Annual Report 2011 24 25 CORPORATE SUSTAINABILITY REPORT

I am pleased to present David Jones’ Corporate Sustainability Report for FY2011. This is the first time that David Jones has consolidated its non-financial disclosures into one report, marking an important milestone on the Company’s journey towards integrated sustainability reporting. David Jones has proudly played its role as a good corporate citizen over the past 173 years and I am personally committed to ensuring that the Company continues to meet its responsibilities to our people, to the communities in which we operate and to the environment. My commitment has not diminished over the past year, despite the unprecedented deterioration in trading conditions and other challenges encountered by Australian retailers in FY2011. Rather, these events have strengthened my resolve to ensure that we strike a balance between short-term profit growth and the long- term sustainability of our business and brand. This report provides an overview of the Company’s performance in four key areas, including: – our people; – our commitment to safety, health and wellbeing; – our community; and Paul Zahra Chief Executive Officer – our environment. This report illustrates the improvement that David Jones has made in managing and reporting its social and environmental responsibilities in recent years, but does not present an exhaustive record of the risks and opportunities that may impact our business or our industry in the future. Over the next 12 months, we will seek to engage a range of stakeholders to identify which industry trends are likely to impact David Jones, and determine what the business can do to manage these risks and realise these opportunities. I am proud of what we have achieved over the past year and am excited by the plans that the business has in place to continue integrating sustainability into our broader corporate strategy. On behalf of the Board of Directors and Executive Committee, I commend this report to you and look forward to providing another update in next year’s annual report.

Paul Zahra

Chief Executive Officer For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 26 27 David Jones is committed to investing in its people and providing a work environment where all employees are supported, recognised and rewarded.

1 DAVID JONES’ COMMITMENT TO ITS PEOPLE as to what is happening at David Jones, including its progress With over 9,000 team members, David Jones is committed to against key performance indicators, and up and coming customer investing in its people and providing a work environment where and company initiatives. everyone is supported, recognised, rewarded and given every 3.2 Your Say Our Future opportunity to reach their full potential. To realise its vision of best place for its people to work, first and David Jones believes that whether its people work in customer foremost David Jones needed to give its people a voice, and hear facing or support roles, if staff are engaged and satisfied, this will what they think and feel about working at David Jones and the lead to continued improvements in customer service, customer opportunities for further improvement. satisfaction and sales. “Your Say Our Future” took the form of an independent and In FY2011, David Jones formalised its people commitment by confidential company-wide employee survey that contained rolling out a new Company vision that has as a central pillar: 81 questions assessing a range of work place related themes. “David Jones will be the best place for our people to work: The survey received a strong response with 74% of team members – every employee is valued; participating. Pleasingly, the most positive responses and those that compared favourably to David Jones’ local and international survey – recognition and reward for contribution and performance; comparison groups fell into the following categories: – opportunities for our people to achieve their full potential; 1. Ethics and integrity; – commitment to safety, health and welfare; 2. My Manager; – commitment to our environmental responsibilities; and 3. Performance assessment; – support for philanthropic causes that are important to both 4. Cooperation and collaboration; and our customers and employees” 5. Leadership and direction. This aspiration has and will continue to drive David Jones’ people focus and investment in its people. The survey has enabled David Jones to identify the key drivers of engagement and opportunities that the Company can pursue to 2 DAVID JONES’ PEOPLE FOCUS make David Jones the best place for its people to work. In FY2011, David Jones intensified its people focus and invested in 3.3 Diversity at David Jones a range of initiatives to ensure its people felt valued and supported particularly, in light of the continuing challenges of the retail trading David Jones recognises the importance of every team member environment. The primary initiatives implemented during FY2011 feeling accepted and valued. The Company’s approach to diversity are set out below. further demonstrates its commitment to promoting an inclusive culture that embraces the gender, age, culture, religious beliefs, 3 COMMUNICATION sexual orientation and family responsibilities of its people. To ensure David Jones’ people feel valued and supported, the The survey provided further valuable insights to the Company’s Company recognises the importance of ensuring that all employees diversity profile and opportunities for enriching its culture further. are informed, included and involved. To this end, the following initiatives have been implemented with the aim of encouraging 3.4 David Jones Social Media Policy For personal use only use personal For regular, open and two way communication across the organisation. David Jones launched its social media sites (Facebook and Twitter) 3.1 Monthly communication rallies during FY2011. The new Social Networking Policy was prepared to encourage and engage employees to participate in David Jones Monthly communication rallies led by the CEO were introduced social media, and to incorporate guidelines for employees when into the Support Centre to coincide with the Store Manager led participating in David Jones social media, as well as to provide communication rallies already established within stores. These overarching principles and guidelines for general online conduct rallies ensure that every month, every employee is fully informed of employees.

David Jones Annual Report 2011 David Jones Annual Report 2011 26 27 CORPORATE SUSTAINABILITY REPORT

4 SAFETY, HEALTH AND WELL BEING 6 REWARD AND RECOGNITION David Jones is committed to ensuring a positive and safe workplace An important part of the David Jones culture is recognising for all team members. To ensure that it continues to enhance its and rewarding the contribution that its people make towards people’s health and welfare, the following initiatives were delivered achievement of the Company’s performance, particularly during during FY2011. challenging trading periods where quantitative rewards and incentives are significantly impacted. 4.1 Employee Assistance Program A company funded employee assistance program was launched 6.1 Increase in employee benefits providing every employee and their immediate family with access David Jones increased its employee discount in line with its local to professional counselling to assist in resolving personal and work retail competitors and in consideration of best practice people related problems. The service is confidential, independent and benchmarks of successful international retailers. available 24 hours a day and 7 days a week. As a driver of employee engagement this has proven to be a 4.2 Code of Ethics and Conduct education sessions popular and successful initiative. Face-to-face education sessions were undertaken with over 9,000 6.2 New Company awards program team members, including the Board, Executive Committee and Each year at the David Jones annual Company conference, the frontline staff. Company recognises and awards individuals and teams who The sessions both refreshed and reinforced David Jones’ Code represent the very best of the high performance culture and the of Ethics and Conduct as well as its Harassment, Bullying and David Jones competencies. Discrimination Policy and Resolution procedure. As part of these In FY2011 the new and revitalised David Jones Excellence Awards sessions, team members formally acknowledged and committed to Program was launched. The Excellence Awards cover three upholding the David Jones Code of Ethics and Conduct at all times. major categories: 4.3 Independent Code of Ethics hotline 1. The Special Achievement awards for Merchandise, Operations To ensure that David Jones’ people can exercise choice and have and the Support Centre; ease of access to raising and resolving any concerns, in addition to 2. The CEO Vision Awards; and the resolution procedure and the internal Code of Ethics hotline, an independent third party hotline was established. 3. The David Jones Legend Awards

5 TRAINING AND DEVELOPMENT Forty-three David Jones Excellence Awards were presented to people who were nominated from all parts of the Company. As continuous improvement in people skills positively impacts employee engagement, retention, productivity and performance, The winners of the David Jones Legend Awards were: despite the challenging retail trading environment, David Jones – Store of the Year: Garden City (WA) Sally-Ann McInnis and recognises the importance of investing in its future and continues to team build the management and leadership capability of its line managers. – Buyer of the Year: George Bingham, Buyer – Beauty During the year, David Jones delivered its existing training and development programs and developed and implemented the – Support Person of the Year: Scott Coppock – Information following program. Technology Group

5.1 David Jones Executive Leadership Development Program 7 THE YEAR AHEAD The Executive Leadership Program was developed in conjunction As the Company moves into FY2012, it will continue to invest in its with Melbourne Business School Mt Eliza during FY2011. The people and is in preparation for the roll out of: program was designed specifically for the development needs of – the people initiatives resulting from the “Your Say Our Future” the David Jones Executive Committee and Executive Leadership employee survey; Team and comprises five leadership modules including a 360 Degree Leadership Survey. The first program was successfully – an annual company–wide refresher course of the Code of Ethics

implemented In May 2011. and Conduct education sessions; and For personal use only use personal For – the launch of a new Future Leaders Program for key talent people managers at middle management level.

David Jones Annual Report 2011 David Jones Annual Report 2011 28 29 David Jones is committed to protecting the health, safety and welfare of all employees, contractors, visitors and customers.

1 DAVID JONES’ COMMITMENT TO OH&S 549 536 David Jones is committed to protecting the health, safety and 458

welfare of all employees, contractors, visitors and customers. 423 In FY2011 the Company maintained its focus on providing a

safe work environment and enabling its people to conduct their 281 248 work safely. The SafetyFirst@davidjones system, Occupational Health & Safety 3.3 (OH&S) and Injury Management (IM) initiatives, combined with the demonstrated leadership commitment, have continued to ensure 11 09 10 11 09 10 11 that all employees regard their safety as a priority. Lost Time Injury Number of Workers Number of Medical The success of David Jones’ commitment is demonstrated in the Frequency Rate Compensation Claims Treatment Injuries strong improvement of its OH&S and IM performance. (per million work Year ended 30 June Year ended 30 July hours) 2 DAVID JONES OH&S & IM PERFORMANCE Year ended 30 July 2.1 FY2011 Performance 3 DAVID JONES SAFETY PROGRAM David Jones is pleased with its safety performance in FY2011. The number of lost time injuries, medical treatment injuries and workers 3.1 Awards compensation claims have steadily improved against previous years. This year, the Toowong Village store was recognised for excellence The improved performance can be attributed to all employees in safety leadership with the SafetyFirst@davidjones Award. embracing safety as a priority, as the OH&S & IM Program The Toowong Village store maintained a strong focus on continues to evolve. best practice injury management and implementation of the In FY2011, the internal audit result demonstrated an effective SafetyFirst@davidjones system within the SafetyFirst@davidjones management system. 3.2 Self Insurance David Jones’ Self-Insurance licence in South Australia has been renewed for a further two years following the Workcover SA evaluation in March 2011.

3.3 National OH&S and IM Plan David Jones has developed a National OH&S and IM planning framework that takes a considered, documented and quantifiable approach to achieving the desired OH&S and IM culture. The Company’s annual OH&S and IM strategic and operational

For personal use only use personal For objectives and key performance indicators were identified and detailed in its FY2011 National OH&S and IM Plan. Throughout the year the Company has measured its performance against the stated key performance indicators, ensuring its initiatives are delivering the desired results and identifying improvement opportunities for the coming year.

David Jones Annual Report 2011 David Jones Annual Report 2011 28 29 CORPORATE SUSTAINABILITY REPORT

3.4 Safe Work Practice Training Program David Jones’ safe work practice training program ensures that all As safety training is a key focus of its national plan, David Jones employees are provided with up-to-date information, instruction implemented a new training procedure and continued to evolve and training on safety, relevant to their position. the annual OH&S and IM training program in FY2011. 4 DAVID JONES FY2012 PRIORITIES The annual OH&S and IM training requirements are now Ongoing improvement in safety performance and systems communicated to all stores via a National Forward Planner. This is continues to be of paramount importance to David Jones. a schedule outlining all OH&S and IM activities to be completed for the year ahead. In the coming year the Company plans on implementing its OH&S and IM Information Management system. This will improve the The training program includes: efficiency, consistency and reporting capabilities of OH&S and IM – OH&S and IM policy and accountabilities activities across all David Jones locations. – Job Safety Analyses and Work Method Statements David Jones also plans to implement a national Contractor Management System, to deliver on its commitment of ensuring the – Hazard and Incident Reporting safety of all employees, contractors and visitors. – Injury Management training for Line Managers

David Jones continues to support the community at large through significant contributions to its philanthropic partners with particular focus on women’s and children’s health.

1. COMMUNITY This donation was made up of the following initiatives. David Jones, as a part of its company vision, is committed to Shop Pink Donation Day: making a valuable contribution to Australian society through the Total donation of approximately $338,000 support of philanthropic causes that are important to both its On Thursday 7 October 2010 David Jones held the annual Shop customers and employees. Pink Donation Day where all profits made from all stores across In FY2011, David Jones made significant contributions Australia were donated to the National Breast Cancer Foundation. to its philanthropic partners with particular focus on The Rose Clinic – Elizabeth Street Store: women and children’s health. During the financial year Total donation of approximately $50,000 David Jones, its customers and employees raised funds of approximately $1,149,500. The David Jones Rose Clinic in its Elizabeth Street store has been in partnership with BreastScreen NSW and The Royal Hospital for 2. WOMEN’S HEALTH Women for approximately nine years. Over this period the clinic has proudly serviced approximately 56,000 women (operating 2.1 National Breast Cancer Foundation (NBCF) today at a 98% utilisation rate) offering ‘state of the art’, free breast Total Donation of approximately $588,000 screening services for women over the age of 40 as well as blood David Jones has been associated with the NBCF since its inception tests and bone density assessments. in 1994 and in 2004, became a Diamond Partner. David Jones has hosted a number of fundraising initiatives in order to continue to In July 2011, David Jones saw the end of its partnership with the Royal Hospital for Women (which offered specialised well

For personal use only use personal For support research programs. women’s health services) so that it could focus its funds and efforts In 2010, David Jones was awarded The Pink Circle Award, which towards an expanded breast screening service. On 16 September is awarded to Corporate Partners who have generated over 2011, a new Rose Clinic was launched in the Company’s $1 million for breast cancer research. QueensPlaza (Brisbane) store. The Company’s proposed breast screening expansion strategy will see Rose Clinics opening in the coming years in Hay Street (Perth) and Adelaide Central Plaza (Adelaide) stores to provide a national service for its customers.

David Jones Annual Report 2011 30 31 The Rose Clinic – Bourke Street Mall Store: 4 QUEENSLAND FLOOD DISASTER Total donation of approximately $50,000 4.1 Premiers Disaster Relief Fund The second David Jones Rose Clinic was opened in August 2010 Total donation of approximately $350,000 in the newly refurbished Bourke Street Mall, Melbourne Store. Many people were affected by the recent flood disaster This is the first in-store breast screening service to be installed in in Queensland. Victoria. The Bourke Street Rose Clinic has had a successful first David Jones enlisted the support of all of its stores nationally and 12 months operating at a 70% utlisation rate in its’ first year. Similar held a Queensland Flood Relief Day on Sunday 9 January 2011, to the Elizabeth Street Rose Clinic, this clinic offers ‘state of the art’ where all profits from all stores were donated to this fund. The mammogram screening technology to offer free breast screening CEO personally attended the televised fund raising appeal to services carried out by St Vincent’s Hospital radiographers. pledge the donation of $250,000 raised from the day. Pink Ribbon Sales: Additionally, David Jones provided customers with an opportunity Total donation of approximately $96,000 to make a donation at any of its point of sale registers. A further David Jones supported the NBCF Pink Ribbon month through the $100,000 was raised. sale of Pink Ribbon merchandise in all stores nationally, in addition, further contributions were made through staff breakfasts in support 5. OTHER CHARITIES of this initiative. Total Donations of approximately $60,000 Charity Bear Sales: Total donation of approximately $54,000 5.1 Talent Development Project Total Donation of approximately $15,000 The David Jones Charity Bears are sold throughout stores nationally to raise monies for the National Breast Cancer David Jones will donate a further $15,000 to support the Talent Foundation. The first Charity Bear launched in 2002 was Theodore Development Project to continue to develop and provide followed by Hugo, Alice, Charlotte, William, Grace and Annabelle. talented young performers from NSW public schools with unique entertainment industry training and experience. 2.2 Look Good Feel Better Total donation of approximately $26,000 5.2 Nelune Foundation Total Donation of approximately $20,000 David Jones made a total donation of approximately $26,000 to the Look Good Feel Better initiative of the Cosmetics, Toiletry David Jones was proud to support the Nelune Foundation Race and Fragrance Foundation of Australia, supporting women in the Day at the Australian Turf Club through sponsorship of a raceday. community living with cancer. The Nelune Foundation is a not-for-profit charity that supports under privileged adults, children and their families in the fight 3. CHILDREN’S HEALTH against cancer.

3.1 Children’s Cancer Institute of Australia (CCIA) 5.3 Peter McCallum Cancer Foundation Total Donation of approximately $125,000 Total Donation of approximately $5,000 Research Grant: David Jones was proud to support the Peter McCallum Cancer Total contribution of $100,000 Foundation at their annual Milken fundraising event. David Jones has an ongoing commitment to support research into neuroblastoma and made contributions to support the work 5.4 Perth Hills Fire Relief Fund of Dr Michelle Henderson, a Senior Scientist in the Experimental Total Donation of approximately $20,000 Therapeutics Program headed by Professor Michelle Haber. David Jones will make a donation to the Perth Lord Mayors Distress Relief Fund to assist with the devastating Perth Hill Fires Gold Ribbon Sales: that had recently occurred prior to the new Claremont Quarter Total contribution of approximately $25,000 store opening. For the month of February, David Jones supports the CCIA Gold Ribbon Month campaign, an initiative that is run exclusively in all David Jones stores through sales of Gold Ribbon merchandise.

Staff and customer donations across all of the Company’s stores For personal use only use personal For nationally, also contribute to this fundraising initiative.

David Jones Annual Report 2011 30 31 CORPORATE SUSTAINABILITY REPORT

David Jones is committed to managing its operations in an environmentally sustainable manner

1 ENVIRONMENT POLICY 2.1 Improve environmental outcomes David Jones is committed to managing its operations in an David Jones continues to invest capital and resources in initiatives environmentally sustainable manner, by: that improve environmental performance over the short-term, while developing a roadmap that will continue to deliver sustained – investing in efficiency measures to reduce the impact that the improvements over the longer term. business has on the environment; and The energy efficiency program has been a key focus for David – developing robust management systems to ensure transparency Jones through FY2011, because more efficient use of electricity and confidence in environmental reporting. represents the most significant opportunity for the business to This commitment is in recognition of David Jones’ responsibilities to reduce environmental impacts and meet the challenge of rising its shareholders, employees and customers and is consistent with energy costs. expectations held by regulators, government and the community. Over the last 12 months, David Jones has: 2 ENVIRONMENT STRATEGY – continued to develop its “Store of the Future” concept for David Jones’ environment strategy aims to meet these policy new stores; objectives by: – implemented energy efficiency projects in existing stores; – improving environmental outcomes though investment in – identified more than 20 incremental opportunities to continue incremental efficiency opportunities; improving energy efficiency across the business, over time; and – meeting (and, where viable, exceeding) the Company’s – conducted pilot studies and assessment activities to evaluate the regulatory and reporting requirements; viability of a number of these opportunities. – ensuring that interested stakeholders are able to access The business also continues to consult widely and work with information about David Jones’ environmental impacts and stakeholders to manage environmental impacts arising from waste initiatives; and management, packaging, transport and water. – driving cultural change across the business, to ensure that 9,000 employees incorporate environmental sustainability into 2.2 Report its performance decision making. Having identified its mandatory reporting requirements, David Jones made the following disclosures in FY2011. This strategy aligns with and supports the Company’s broader strategic objectives. It also assists in creating competitive advantage – The Company’s first submission to the Department of for the business as it: Climate Change and Energy Efficiency DCCEE( ) under the National Greenhouse and Energy Reporting (NGER) scheme, – reflects the interests of David Jones’ employees and customers, disclosing total energy consumption and emissions data to the and therefore provides an opportunity to enhance engagement; Federal government. – ensures that the Company is well positioned to adapt to – The final update to the National Packaging Covenant NPC( ), changing market conditions and regulatory requirements; and which was commended for the strength of its quantitative and – enhances David Jones’ ability to protect shareholder value, as the qualitative analysis. business prepares for the transition to a low-carbon economy. – A two-year action plan to the new Australian Packaging This section provides an overview of key developments in relation Covenant (APC), which is to be supplemented by a four-year

For personal use only use personal For to the evolution and implementation of David Jones’ environment action plan to cover the FY2013 – FY2016 period. strategy through FY2011. The business also made its first submission to the Carbon Disclosure Project (CDP) in FY2011. The CDP manages the world’s largest database of corporate climate change information, which it compiles through voluntary responses to its annual survey of more than 3,000 listed organisations in 60 countries. As a

David Jones Annual Report 2011 32 33 result of this submission, David Jones was listed on the Carbon 3.1 Energy Management Disclosure Leadership Index (CDLI) for excellence in carbon Like many retailers, energy represents David Jones’ single-largest management and disclosure, along with some of Australia’s leaders environmental impact and most significant opportunity to improve in environmental sustainability. sustainability. Since FY2006, the business has been actively engaged Additional information about each of these disclosures has been in managing its electricity consumption and investing in cost- made available on the new “Community and Environment” effective energy efficiency projects to reduce usage and emissions. webpage, at the David Jones website. In that time, David Jones has reduced total electricity consumption by 15.2%. Over the same period, like-for-like (LFL) consumption 2.3 Communicate with stakeholders has reduced by 19.0% primarily as a result of a 25.3% improvement In FY2010, David Jones developed a plan that aimed to inform in energy efficiency, which continued its downward trend in employees, customers and the investor community about its FY2011 to 54.59 watts per square meter. environmental impacts and initiatives. In implementing this plan through FY2011, the business has: David Jones has now reduced total consumption to 108.0 gigawatt hours, including a 2.9% reduction from FY2010 to FY2011, despite – launched a new webpage on the David Jones website, to an increase in trading hours. Consequently, greenhouse gas (GHG) consolidate all environmental disclosures in one location; emissions arising from electricity consumption have also declined, – provided additional information to external stakeholders through to 101.1 kilo tonnes (equivalent to 51.5 tonnes per million dollars this webpage, such as a detailed breakdown of David Jones’ of sales). emissions profile, reporting boundary and methodology; and The FY2011 result has been influenced by closed and refurbished – implemented a range of measures that aim to provide stores but has also been supported by measures to drive information to prospective, new and current employees through continuous improvement in the energy performance across the a range of channels. business. This work has been driven by the Facilities Management team, which continues to optimise performance of the Building Incremental opportunities to enhance communication (particularly Management System (BMS) platform installed into 24 stores since with employees) have been identified as a result of the “Your FY2007. Say Our Future” survey and will be incorporated into the FY2012 work plan. 122.2 120.3 112.2 111.2 108.0 2.4 Drive cultural change 127.3 (FY2006 baseline) To complement these communications measures, additional opportunities that aim to improve awareness and support of 69.81 David Jones’ environmental programs have been identified. 64.04 58.72 56.32 54.59 Watts per square metre The cumulative objective of these communication and engagement Baseline activity activities is to drive cultural change across the business and ensure 121.0 114.5 103.8 101.9 that environmental sustainability is integrated into decision making 98.3 New activity 07 08 09 10 11 at all levels of the organisation. Implementation of these plans will continue into FY2012, to ensure that capital investment is Energy Consumption / Energy Efficiency (FY2007 – FY2011) Energy Consumption/Energy Efficiency (FY07–FY11) supported by behavioural change. Annual GWh against the FY2006 baseline and watts per square metre, Annual GWh and Watts Per Sq. Metre Per Trading Hour per average trading hour 3 ENVIRONMENTAL MANAGEMENT David Jones’ key focus areas in relation to environmental management include: energy, waste management, packaging, transport and travel, water and refrigerant gases. Typically, the business has the ability to directly influence environmental outcomes in these areas or is obligated to disclose its impacts. 19.0% This section of the report provides an overview of David Jones’ REDUCTION IN environmental impacts and initiatives in each of these areas

For personal use only use personal For LFL ENERGY USAGE in its stores, warehouses and support centre offices for the FY2011 period. since FY2006

David Jones Annual Report 2011 David Jones Annual Report 2011 32 33 CORPORATE SUSTAINABILITY REPORT

David Jones also made capital investment in its energy efficiency For the third consecutive year, the business has exceeded the program through FY2011, including: APC’s target for cardboard recycling and has increased the total amount of waste material collected for recycling. As a result, the – the continued rollout of the BMS platform, with complementary business diverted a further 1,747 tonnes of cardboard and soft economy measures for air conditioning; plastic film from landfill in the 12 months to July 2011, an increase – a pilot study of devices that have the potential to reduce energy of 230 tonnes from the previous year. consumption by modulating voltage on lighting circuits, which did These achievements have been driven by David Jones’ Stores team, not meet expectations in terms of project benefits and so will working together with contractors and service providers to reduce not proceed; the impact that the business has on the environment. – a 15-month assessment of LED lighting technology, to replace Reductions in general waste in stores have also been supported David Jones’ stock of halogen spotlights; and by ongoing adoption of environmentally-sound disposal plans by – lighting upgrades at Wollongong NSW, Chadstone VIC, the Supply Chain team. Over the past four years, David Jones’ Warringah Mall NSW and Marion SA, concurrent to store warehouses have: refurbishment activity. – Donated 180 pallets of end-of-life visual merchandising props to These lighting projects (including the replacement of 45,000 charities and not-for-profit organisations; halogen spotlights with LED equivalents) increase David Jones’ – Recycled 79 tonnes of metal fixtures and fittings; and investment in energy efficiency by $4.4 million and will deliver further reductions in electricity consumption and GHG emissions – Collected 15,600 mattresses from customer homes, for recycling. through FY2012. The Information Technology group also contributes to efforts to Thereafter, more than 20 energy efficiency opportunities identified reduce the amount of waste that David Jones sends to landfill, in FY2011 will be assessed in terms of viability and feasibility processing 38.0 tonnes of e-waste for recycling over the last five over the next 12 months, for implementation in support of the years, including 7.1 tonnes in FY2011. End-of-life items disposed of FY2103–16 Strategic Plan. as e-waste include phones, monitors, desktop computers, laptops, printers, photocopiers and fax machines. Whereas initiatives implemented to date have focused on improving efficiency in lighting and air conditioning (which Waste management will continue to be a priority for David Jones represent approximately 80% of consumption) David Jones will through FY2012, after benchmarking analysis conducted in FY2011 expand its energy program to also include IT assets, lifts and identified opportunities to align all parts of the business with best escalators, and refrigeration. Efficiency measures in these areas have practice stores and processes. contributed to David Jones’ reduction in total consumption, as demonstrated by the reduction in the amount of energy consumed 3.3 Packaging by the David Jones Data Centre as a result of server virtualisation After an eight-year association with the NPC, David Jones and consolidation initiatives implemented since FY2008. committed itself to the new APC in FY2011 with the submission of a two-year action plan for the 2011-12 period. At a strategic level, the Retail Development group will continue development of its “Store of the Future” concept to ensure that Subject to business priorities, the business aims to submit a new stores match (and, where viable, exceed) best practice design four-year plan in 2012, to ensure that future commitments to principles for energy efficiency in the retail sector. the APC align with the Company’s FY2103 – FY2016 Strategic Plan and continue to support the APC’s strategic goals of Given the impact of rising electricity costs, the introduction of a sustainable packaging design and product stewardship; defined carbon pricing scheme and changing stakeholder expectations, the as manufacturers, suppliers, brand owners and retailers working aim of this program is to continue reducing electricity consumption together to adopt a life-cycle approach to the management of and GHG emissions at the lowest cost to the business. packaging, from design to disposal. 3.2 Waste Management Also in FY2011, David Jones confirmed that the business had The effective diversion of waste material from landfill also achieved all of its waste minimisation targets and implementation represents a significant opportunity for retailers to improve objectives outlined in its 2007 – 2010 NPC Action Plan. Over that environmental outcomes. For David Jones, this opportunity requires period, the business had: For personal use only use personal For ongoing cultural change to deliver incremental improvements in – implemented systems to drive continuous improvement in recycling rates and reductions in landfill emissions, following the relation to the recycling of distribution packaging; implementation of the Waste Management Initiative in FY2007. – reduced the amount of raw materials used to produce its Since that time, the Operations group has reduced the amount of plastic bags; general waste sent to landfill by 44.6% to 3,323 tonnes, including a 84 tonne reduction in FY2011.

David Jones Annual Report 2011 David Jones Annual Report 2011 34 35 – launched the David Jones reusable tote bag and sold more than In the interim, David Jones will continue to work with local 218,600 units since November 2007; and authorities and landlords to deliver incremental improvements in water management and ensure compliance with regional water – engaged some of David Jones’ top-100 suppliers, to help efficiency regulations. identify opportunities to move towards more sustainable packaging over time. 3.6 Refrigerant Gases Going forward, the Merchandise group will work to meet David The Company made its first submission under the NGER Jones’ obligations to the APC, leveraging commercial relationships scheme last year, including its emissions of synthetic gases used with key vendors and supply chain partners to help identify and in refrigeration and air conditioning. In FY2011, recharges and implement innovative design solutions and minimise the life-cycle leakages of these gases represented 3.5% of total GHG emissions. impacts of packaging. This variation above peer organisations can be attributed to refrigeration in Foodhall stores operated by David Jones and to the The key objective for FY2012 is to meet the short-term organisation’s portfolio of standalone chillers for air-conditioning. commitments made to the APC, including: the development of the framework, system and tools required to conduct mandatory 4 GOVERNANCE PRINCIPLES packaging reviews on own-brand packaging by FY2014, a cross- David Jones’ management will continue to ensure oversight of functional product review of plastic bags, and the launch of new sustainability issues, initiatives and disclosures by: reusable tote bags at three different price points, to meet different needs across the market. – updating the Company’s risk matrix to reflect the changing macro environment and stakeholder expectations; 3.4 Transport and Travel – providing updates to the CEO and Executive Committee; and Unlike local and international peers, David Jones does not operate a centralised distribution centre because suppliers are – conducting external verification on an annual basis, to ensure responsible for the movement of merchandise directly to stores. confidence in environmental disclosures. This results in relatively low emissions from transport activities within the Company’s operational control, which are limited to the 5 SUMMARY consumption of diesel and gasoline from its fleet of shuttle trucks. David Jones continued to invest in efficiency measures in FY2011 to ensure improved environmental outcomes can be Within this context, the key objective of load efficiency measures sustained, over time. The business also expanded its disclosure implemented to date has been to offset the impact of volatile program, supported by increasingly robust management systems, fuel prices on the business. The 15% reduction fuel consumption, and launched new communication channels to provide more achieved by the Supply Chain team in FY2009, has been information to more stakeholders. maintained over the past two years and GHG emissions from direct transportation have remained constant at 250 tonnes. 6 FY2012 Priorities The Company also monitors its corporate travel profile and relies As the business prepares for the likely introduction of a carbon on information provided by its airline partners to track GHG pricing scheme in July 2012, the challenges for FY2012 include: emissions from interstate and overseas flights. ensuring effective execution of capital projects that have business approval, identifying and assessing the next tranche of efficiency 3.5 Water Management initiatives, and implementing engagement measures that have the In comparison to other retailers and to other companies operating ability to drive cultural change and ensure that environmental in more water-intensive industries, David Jones is a relatively sustainability is integrated in tactical and strategic decision making, small consumer of water. Preliminary analysis estimates water across the business. consumption to be in the range of 400-600 mega litres per annum, based on the square meter benchmark of those stores that are directly metered. Subject to the progress of other environmental programs, David Jones aims to develop a water management plan that meets stakeholder expectations in relation to the efficient and sustainable

For personal use only use personal For use of water resources. In principle, this plan will be based on measures incorporated into the redevelopment of 310 Bourke Street, Melbourne, where water consumption declined by 17.1% following investment in new washroom facilities, new cooling towers and rain water storage for use in grey water applications.

David Jones Annual Report 2011 David Jones Annual Report 2011 34 35 directors’ report

The Directors present their Report together with the Financial Statements of the Consolidated Entity for the 52 weeks ended 30 July 2011.

DIRECTORS The Directors of the Company in office at any time during, or since the end of, the financial year are as follows: Robert Savage AM Chairman and independent Non-Executive Director John Coates AC Deputy Chairman and independent Non-Executive Director Paul Zahra Chief Executive Officer and Executive Director* Stephen Goddard Finance Director and Executive Director Reginald Clairs AO Independent Non-Executive Director John Harvey Independent Non-Executive Director Katie Lahey Independent Non-Executive Director Peter Mason AM Independent Non-Executive Director Philippa Stone Independent Non-Executive Director The above Directors were in office for the entire financial year and up to the date of this Report. For details of the Directors’ qualifications, experience, special responsibilities and other Directorships, refer to pages 8 to 9, which are to be read as part of this Report. *Paul Zahra is also Managing Director of the Company.

COMPANY SECRETARY The Company Secretary is Caroline Waldron (LLB (Hons), ACIS). Caroline Waldron was appointed to the position of Company Secretary on 21 March 2005. She is also General Counsel and has more than 17 years’ in-house legal experience working with boards of directors and senior management in public listed companies in Australia and New Zealand.

PRINCIPAL ACTIVITIES The principal activities of the Consolidated Entity during the financial year consisted of department store retailing and a financial services alliance with American Express. There were no significant changes in the nature of the activities of the Consolidated Entity during the financial year.

DIVIDENDS Dividends paid or declared by the Company to ordinary shareholders since the end of the previous financial year were as follows: Total Paid / Payable Date Cents Per Share $000 Paid / Payable Dividends paid during the year 2010 Final dividend 18.0 91,970 8 November 2010 2011 Interim dividend 13.0 66,825 9 May 2011 Dividends declared after year end 2011 Final dividend 15.0 78,113 7 November 2011

All dividends were fully franked at the tax rate of 30%. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 36 37 REVIEW OF OPERATIONS BUSINESS STRATEGIES AND PROSPECTS The profit after income tax expense of the Consolidated Entity Information on the Consolidated Entity’s business strategies for the financial year was $168.139 million. and its prospects for future financial years is included in the Chairman’s and Chief Executive Officer’s Report. In the opinion The full financial position of the Consolidated Entity is shown in of the Directors, further information on the Consolidated the Financial Statements and the accompanying notes on pages Entity’s business strategies and its prospects for future financial 60 to 117. years would, if included in this Report, be likely to result in A detailed review of operations and the results of those unreasonable prejudice to the Consolidated Entity and has operations is set out in the Chairman’s and Chief Executive accordingly been omitted. Officer’s Report on pages 2 to 6. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS LIKELY DEVELOPMENTS AND EXPECTED RESULTS In the opinion of the Directors, there were no significant changes OF OPERATIONS in the state of affairs of the Consolidated Entity during the Comments on likely developments or expected results of the financial year. Consolidated Entity’s operations are included in the Chairman’s and Chief Executive Officer’s Report. Further information on likely developments in the operations of the Consolidated Entity and the expected results of those operations in future financial periods has been omitted as the Directors believe it would be likely to result in unreasonable prejudice to the Consolidated Entity’s interests.

DIRECTORS’ MEETINGS The number of Directors’ meetings (including meetings of committees of Directors) and the number of meetings attended by each Director during the financial year were:

DIRECTORS’ MEETINGS REMUNERATION AND PROPERTY BY WRITTEN AUDIT COMMITTEE NOMINATIONS COMMITTEE SCHEDULED RESOLUTION1 MEETINGS COMMITTEE MEETINGS MEETINGS DIRECTOR A B A B A B A B Robert Savage AM 11 11 2 42 – 4 4 2 2 John Coates AC 11 11 2 4 4 – – 2 2 Paul Zahra 11 11 2 – – – – – – Stephen Goddard 11 11 2 – – – – – – Reginald Clairs AO 11 11 2 12 – 23 4 – – John Harvey 11 11 2 4 4 – – – – Katie Lahey 103 11 2 12 – 4 4 – – Peter Mason AM 103 11 2 4 4 – – – – Philippa Stone 11 11 2 4 4 – – 2 2 A Number of meetings attended B Number of meetings held during the time the Director held office or was a member of a committee during the year 1 Written resolution passed to deal with specific matters and signed by all Directors 2 Attended on an ex-officio basis 3 Absence due to international travel – granted leave of absence by Chairman

For personal use only use personal For During the financial year, Directors also visited many of the Company’s stores and major suppliers to improve their understanding of retail operations.

David Jones Annual Report 2011 David Jones Annual Report 2011 36 37 directors’ report

DIRECTORS’ INTERESTS INDEMNIFICATION AND INSURANCE OF DIRECTORS, The relevant interest of each Director in the contributed equity OFFICERS AND AUDITORS of the companies within the Consolidated Entity, as notified by Indemnification of Directors the Directors to the ASX in accordance with section 205G(l) of The Company has indemnified each Director referred to on the Corporations Act, at the date of this Report is as follows: page 36 of this Report, the Company Secretary and previous ORDINARY SHARES LTI PLAN Directors and Secretaries (Officers) against all liabilities or 1,2 DIRECTOR IN THE COMPANY RIGHTS loss (other than to the Company or a related body corporate) Robert Savage AM 137,159 – that may arise from their position as Officers of the Company John Coates AC 54,771 – and its controlled entities, except where the liability arises out Paul Zahra 863,926 862,500 of conduct involving a lack of good faith or indemnification is Stephen Goddard 2,235,782 250,000 otherwise not permitted under the Corporations Act. The Reginald Clairs AO 187,026 – indemnity stipulates that the Company will meet the full amount John Harvey 44,929 – of any such liabilities, including costs and expenses, and covers Katie Lahey 23,251 – a period of seven years after ceasing to be an Officer of the Peter Mason AM 121,506 – Company. The indemnity is contained in a Deed of Access, Philippa Stone 29,754 – Insurance and Indemnity, which also gives each Officer access to the Company’s books and records. 1 Not applicable to Non-Executive Directors The Company has also indemnified the current and previous 2 In accordance with the LTI Plan rules, the number of ordinary Directors of its controlled entities and certain members of the shares which may be issued is dependent on Company and Company’s senior management for all liabilities or loss (other individual performance and can range from zero up to 100% than to the Company or a related body corporate) that may of the rights allocated. arise from their position, except where the liability arises out of conduct involving a lack of good faith or indemnification is RIGHTS TO UNISSUED SHARES otherwise not permitted under the Corporations Act. At the date of this Report, the Company has on issue rights under the LTI Plan which could convert to 6,380,000 ordinary shares Indemnification of Auditor in future periods. The Company will not receive any monetary The Constitution of the Company provides that it must consideration on the vesting of these rights. Further details are indemnify its auditor, Ernst & Young, against any liability incurred disclosed in the Remuneration Report. in their capacity as auditor in defending any proceedings, whether civil or criminal, in which judgement is given in their favour or in SHARES ISSUED DURING OR SINCE THE END OF THE YEAR which they are acquitted or in connection with any application in AS A RESULT OF THE EXERCISE OF RIGHTS relation to any such proceedings in which relief is granted under During the financial year, 2,868,156 rights under the LTI Plan the Corporations Act. converted to 2,851,741 fully paid ordinary shares in the capital of the Company. No money was received by the Company on the As part of the Company’s terms of engagement with Ernst & conversion of these rights to ordinary shares. Young, the Company has agreed to indemnify Ernst & Young against certain liabilities to third parties arising from their Since the end of the financial year 6,324,027 rights under the engagement as auditor. The indemnity does not extend to LTI Plan converted to 5,672,957 fully paid ordinary shares in the any liability resulting from a negligent, wrongful or wilful act capital of the Company. No money was received by the Company or omission by Ernst & Young. on the conversion of these rights to ordinary shares. Insurance premiums EVENTS SUBSEQUENT TO REPORTING DATE The Company has paid insurance premiums for one year of cover Dividends in respect of Directors’ and Officers’ liability insurance contracts, On 20 September 2011, the Directors declared a final dividend of for Officers of the Company and of its controlled entities. The 15 cents per ordinary share, fully franked at the tax rate of 30%. insurance cover is on standard industry terms and provides cover The final dividend is payable on 7 November 2011. for loss and liability for wrongful acts in relation to the relevant

person’s role as an Officer, except that cover is not provided For personal use only use personal For REMUNERATION REPORT for loss in relation to Officers gaining any profit or advantage The Remuneration Report, which forms part of the Directors’ Report, is set out on pages 40 to 59 and has been audited as required by section 308(3C) of the Corporations Act.

David Jones Annual Report 2011 David Jones Annual Report 2011 38 39 to which they were not legally entitled, or Officers committing AUDIT SERVICES any criminal, dishonest, fraudulent or malicious act or omission, Auditor’s independence declaration or any knowing or wilful violation of any statute or regulation. Cover is also only provided for fines and penalties in limited The auditor’s independence declaration to the Directors of circumstances and up to a small financial limit. In accordance with the Company in relation to the auditor’s compliance with the commercial practice, the insurance policy prohibits disclosure of independence requirements of the Corporations Act and the the terms of the policy including the amount of the premiums. professional code of conduct for external auditors, forms part of the Directors’ Report, and is set out on page 119. During the financial year, the Company has not paid any premium in respect of any insurance relating to Ernst & Young. No person who was an Officer of the Company during the financial year was a director or partner of the Consolidated ENVIRONMENTAL REGULATION Entity’s external auditor at a time when the Consolidated Entity’s The Company takes a responsible approach in relation to external auditor conducted an audit of the Consolidated Entity. the management of environmental matters. All significant Non-audit services environmental risks have been reviewed and the Consolidated Entity has no legal obligation to take corrective action in respect No non-audit services were undertaken by the Consolidated of any environmental matter. To the best of the knowledge Entity’s external auditor, Ernst & Young, during the financial year. and belief of the Directors, the Company is not in breach of Audit services any environmental legislation in any State or Territory. The Company’s approach to environmental matters is further During the financial year, the following fees were paid or were discussed in the Environment section on pages 32 to 35 of due and payable for services provided by the external auditor this Annual Report. of the Company and Consolidated Entity:

CONSOLIDATED 2011 2010 $ $ Audit and review of the Financial Statements 591,965 645,105 Total auditor’s remuneration 591,965 645,105

PROCEEDINGS ON BEHALF OF THE COMPANY No proceedings have been brought on behalf of the Company, nor has any application been made in respect of the Company under section 237 of the Corporations Act.

ROUNDING OF AMOUNTS The Company is of a kind referred to in Class Order 98/100 issued by the Australian Securities and Investment Commission and in accordance with that Class Order as in force as at 31 July 2010 amounts in this Report and the accompanying Financial Statements have been rounded to the nearest one thousand dollars unless otherwise indicated.

Signed in accordance with a resolution of the Directors: For personal use only use personal For Robert Savage Paul Zahra Chairman Executive Director and Chief Executive Officer Sydney, 6 October 2011

David Jones Annual Report 2011 David Jones Annual Report 2011 38 39 directors’ report: remuneration report

CONTENTS 1. 2011 Remuneration Report in Brief 41 2. Scope of the Report 43 3. Remuneration Philosophy and Objectives 43 4. Remuneration of Executive Directors and Senior Executives 43 5. Summary of Employment Contracts 51 6. Remuneration of Non-Executive Directors 52 7. Remuneration of Key Management Personnel 53 Appendix One – Summary of Long Term Incentive and Retention Plans 54 Appendix Two – The Remuneration of KMP for the year ended 30 July 2011 55 Appendix Three – The Remuneration of KMP for the year ended 31 July 2010 56 Appendix Four

– Equity Holdings of KMP 57 For personal use only use personal For

David Jones Annual Report 2011 40 1. REMUNERATION REPORT IN BRIEF The key terms of the engagement and process implemented to The Board is committed to clear and transparent disclosure of ensure compliance with the requirements of the Bill are outlined: the Company’s remuneration arrangements. This remuneration – PwC has been engaged by the Committee as a Remuneration overview sets out for shareholders the key details regarding Consultant to provide continuing remuneration advice for the Director and Senior Executive remuneration for FY2011. The KMP for FY2012. full Remuneration Report provides greater detail regarding the remuneration structures, decisions and outcomes for David Jones – Only the Chair of the Committee, or a non-Executive for 2011. Director delegate, can brief the Remuneration Consultant with instructions to provide remuneration recommendations in so Significant factors impacting remuneration this year far as they relate to the quantum or structure of remuneration There have been a number of factors during the financial year for the KMP of the Company. that have impacted the remuneration of the Directors and Senior – Management may be consulted during the engagement to Executives of the Company. ensure that the Remuneration Consultant has the necessary Economic Conditions information and facts relating to Company processes, practices and business issues required to complete the engagement. The current economic climate and in particular the retail trading environment during 2010/11 has had a significant impact on the – The Remuneration Consultant may provide facts and analysis, remuneration outcomes of Senior Executives for FY2011. but not a remuneration recommendation, to management for review. This is to ensure that the Company has a consistent The Company’s annual Profit After Tax (PAT) target required for and integrated approach to remuneration arrangements for the payment of Short-term Incentives for the Executive Directors both KMP and non-KMP roles. and Senior Executive Management has not been met. This has resulted in the 100% forfeiture of target short-term incentive – Any Remuneration Recommendation made by the for all Senior Management Roles within the Company that have Remuneration Consultant relating to the KMP of the Company, PAT as the key financial hurdle. Remuneration outcomes for the will only be provided directly to the Chair of the Committee Directors and Senior Executive for FY2011 are discussed in more for review and distribution to management as appropriate, via detail later in this report. the Group Executive of Human Resources. Changes to Corporations Law – The Group Executive of Human Resources may engage The Corporations Amendment (Improving Accountability on Director the remuneration consultant to provide generic market and Executive Remuneration) Bill 2011 (the Bill) was assented information and complete specific engagements relating to on 27 June 2011 and came into effect on 1 July 2011. The non-KMP roles. As a matter of courtesy, the Group Executive requirements outlined in the Bill apply to accounting periods of Human Resources will notify the Committee of any non- commencing on or after 1 July 2011, and therefore apply to the KMP engagements. Company’s financial year commencing on 31 July 2011 (FY2012). The above process has been designed to ensure that there Although not required under the revised legislation, the is the continued alignment of remuneration frameworks Company has chosen to provide information to shareholders on between the Company’s KMP and non-KMP and to facilitate how it has commenced the application of the requirements of the following outcomes: the Bill from the commencement of FY2012. – appropriate cascade of performance measures between KMP In line with requirements of the Bill, in so far as they relate to the and non-KMP roles; appointment of Remuneration Consultants, the Board has chosen – support the succession of talent from non-KMP to KMP roles; to appoint PricewaterhouseCoopers (PwC) as the Remuneration and Consultant to provide remuneration recommendations to the Remuneration and Nomination Committee (Committee) in – appropriate management of Company costs. so far as the recommendations relate to the Key Management Personnel (KMP) of the Company from 31 July 2011 and

thereafter. For personal use only use personal For

David Jones Annual Report 2011 41 directors’ report: remuneration report

Changes in Senior Executive management The main events that have occurred during FY2011 are the resignation and appointment of Senior Executives outlined below. Further details relating to the remuneration of these Senior Executives is outlined within this Remuneration Report: Name Role Date Resignations D. Eales Group General Manager Financial Services and Marketing 28 January 2011 C. Garnsey Group General Manager Apparel, Accessories, Footwear and Cosmetics 29 April 2011 Appointments M. Durbin Group Executive Financial Services 31 January 2011 S. Laing Group Executive Fashion and Beauty 31 January 2011 B. Riddington Group Executive Marketing 31 January 2011 The next section of the Remuneration Report provides an overview of the remuneration of the Executive Directors and Senior Executives.

2011 Remuneration Overview for the CEO, Finance Director and Senior Executives Details of the CEO, Finance Director and Senior Executives’ remuneration, prepared in accordance with statutory obligations and accounting standards are contained in Appendix Two of the Remuneration Report. The table below sets out the cash and other benefits received by the CEO, Finance Director and the Senior Executives in the 2011 financial year: Cash Cash Equivalent Executives Salary of Dividends1 2011 STI 2011 LTI2 Other3 Total Senior Executives for the full reporting period: P. Zahra4 $1,347,248 $88,571 – $1,041,619 $124,446 $2,601,884 S. Goddard $950,138 $460,285 – $999,786 $87,418 $2,497,627 A. Karp $708,702 $88,571 – $401,162 $51,599 $1,250,034 P. Robinson $663,659 $88,571 – $401,162 $50,494 $1,203,886 C. Daniels $437,608 $8,857 – $547,239 $44,122 $1,037,826 K. McLachlan $569,866 $70,857 – $320,930 $38,686 $1,000,339 P. Bauchinger $401,474 $30,114 – $136,395 $28,834 $596,817 Senior Executives who were appointed during the reporting period5: S. Laing $231,615 $8,357 – $281,875 $43,541 $565,388 B. Riddington $207,711 $7,428 – $212,878 $14,900 $442,917 M. Durbin $226,813 $8,357 – $255,092 $40,384 $530,646 Senior Executives who resigned in the reporting period6: C. Garnsey $753,978 – – $(801,345) $71,477 $24,110 D. Eales $307,188 – – $(801,345) $(73,692) $(567,849) 1 Under the terms of the FY2009 – FY2011 and FY2009 – FY2012 retention plans Senior Executives receive the cash equivalent of dividends (CED) on rights that have vested based on company performance but have not yet converted to shares. FY2011 is the final year of entitlement to any CED payment. 2 LTI values have decreased from the prior year due to the partial vesting of rights as a result of the Profit After Tax performance measure being achieved above target but below stretch level and also the phasing of accounting expenses as required under AASB2 Share-based Payments. 3 Other includes non-monetary benefits, superannuation, annual leave and long service leave accruals and gift cards. Further details are

available in Appendix Two. For personal use only use personal For 4 Cash salary for P. Zahra includes his revised Employment Cost upon appointment to CEO for the full reporting period. 5 Includes remuneration received by the Senior Executive from 31 January 2011 (being the date of appointment to the position of Group Executive). 6 Includes remuneration received up to the date of termination. 2011 LTI values for terminated employees include a reversal of forfeited rights in accordance with the accounting standard AASB 2 Share-based Payments.

David Jones Annual Report 2011 David Jones Annual Report 2011 42 43 2. SCOPE OF THE REPORT Management competencies – apply to line managers in addition This Remuneration Report outlines the remuneration to the universal competencies and include Results through arrangements for Key Management Personnel (KMP). The Others, Business Savvy, Cost Efficiency Leader and Shape term KMP refers to those persons having the authority and our Future. responsibility for planning, directing and controlling the activities Senior Executive competencies – apply to Senior Executives in of David Jones, directly or indirectly. KMP includes Non-executive addition to the universal and management competencies and Directors, and Executive Directors and includes the five highest includes Grow, Grow, Grow. paid Senior Executives of the Company and Group. Generally in this Report the term “Senior Executive” is used to refer to The high performance culture established at David Jones has the KMP other than the Non-Executive Directors. However, been derived from achieving an effective balance between the arrangements of the CEO and the Finance Director are “what” an employee delivers, “how” they go about doing this described separately where they differ materially from the and the increased focus on aligning Company performance with arrangements of other Senior Executives. This Remuneration employee remuneration. Report incorporates disclosures required by the Corporations 4. REMUNERATION OF EXECUTIVE DIRECTORS AND Act and has been audited. SENIOR EXECUTIVES 3. REMUNERATION PHILOSOPHY AND OBJECTIVES The remuneration structure for Senior Executives, including the The key principles of the David Jones remuneration philosophy Company Secretary, involves three components: are integral to embedding a culture that is highly results- – fixed remuneration; oriented and is designed to ensure the Company remunerates employees in a way that recognises and rewards performance – short-term incentives (STI); and while upholding the interests of shareholders, the Company – long-term incentives (LTI). and the individual. David Jones’ approach to performance and remuneration can be defined as: 4.1 Summary of Remuneration Mix – applying a “pay for performance” philosophy that directly The Company’s remuneration structure is designed to achieve links employee remuneration to the achievement of individual an effective balance between fixed and variable components results and the Company’s overall performance; of remuneration, specifically, to drive decisions and behaviours that focus on achieving short-term annual results, while at the – balancing incentives to appropriately reward superior results in same time giving consideration to the longer term profitability of the short term and sustained performance over the long term; the Company and sustainable shareholder value. The following – ensuring employees are remunerated in a way that recognises table summarises the current targeted remuneration mix of and rewards individual performance while upholding the Senior Executives: longer term interests of shareholders and continued strong % OF TOTAL TARGETED REMUNERATION performance of the Company; and Fixed – providing remuneration that is market competitive and Remuneration STI LTI enabling the attraction, motivation and retention of high Position % % % performing employees. Executive CEO 39 19 42 3.1 The David Jones Competencies Directors Finance Director 35 17 48 David Jones competencies describe the skills, capabilities and Senior behaviours required of employees in order to achieve their Executives CEO Direct Reports1 45 19 36 outcomes. These competencies have been incorporated into 1 Based on average of all CEO Direct Reports for FY2011 every performance-based program that links to recognition, excluding Senior Executives who ceased employment during reward and remuneration: the annual performance appraisal, the the reporting period. annual remuneration review, the STI Scheme and the LTI Plan. The David Jones competencies are summarised as follows:

Universal competencies – apply to all employees and include For personal use only use personal For Live for our Customers, Strive to Achieve, See it Do it, Unite the Business and Think Safe, Act Safe, Be Safe and the Face of David Jones.

David Jones Annual Report 2011 David Jones Annual Report 2011 42 43 directors’ report: remuneration report

4.2 Fixed Remuneration To ensure continuous improvement, the STI Scheme David Jones’ policy in relation to employees is to provide “at performance measures are comprehensively reviewed and market” remuneration for fulfilling target requirements of the communicated annually. At the beginning of the financial year role and the opportunity for “above market” remuneration for the Committee recommends to the Board the STI Scheme superior performance. performance targets and measures for Senior Executives. Fixed remuneration is comprised of Employment Cost 4.3.1 Participation and Performance Measures (EC) made up of base salary plus superannuation guarantee Annual participation in the STI Scheme is conditional on achieving contributions and other benefits provided through salary the required level of performance in the annual performance sacrificing arrangements. EC is determined by reference to formal appraisal process. To qualify for annual participation in the STI benchmarked information relating to external employment Scheme, an employee must achieve the KRAs applicable to markets, as well as individual performance and position their role, as well as consistently demonstrate the behaviours accountabilities, requirements, qualifications and experience. comprising the David Jones competencies. If an employee does not achieve the Company’s target appraisal score, they do not An annual appraisal process is undertaken on the individual participate in the STI Scheme for that year despite achieving their performance of all executives. Any adjustment to fixed hurdles and qualifiers. remuneration is based on individual performance. Individual performance is assessed against both David Jones competencies At the commencement of each financial year, eligible employees and Key Result Areas (KRAs), which are technically based and are advised of their potential STI Scheme reward and the hurdles relevant to the employee’s annual objectives. and qualifiers they need to achieve, in order to qualify for an STI Scheme payment. The nature of STI Scheme hurdles and The result of the executive’s individual appraisal is linked to the qualifiers is summarised as follows: annual remuneration review and determines what, if any, increase will be received. No increases are guaranteed. If the executive – each employee is allocated a minimum of two hurdles and four does not meet the target requirements of his or her KRAs or qualifiers, depending on the function in which they work; competencies, his or her EC is not increased. – all hurdles must be achieved in order to earn an STI Scheme 4.3 Short Term Incentive Scheme payment (i.e. irrespective of performance, if one hurdle is not met, no STI is payable); The STI Scheme is a performance-based scheme, designed to link specific annual targets (predominantly financial) with – when the hurdles are achieved, the employee is further the opportunity to earn cash-based incentives derived from assessed against a number of qualifiers specific to the position a percentage of EC. they occupy; The objectives of the STI Scheme are to: – the number of qualifiers achieved determines the actual percentage of their STI Scheme payment received; – reinforce and embed the “pay for performance” philosophy underpinning the remuneration philosophy; – the employees’ STI Scheme reward quantum is determined by reference to a percentage of their EC; and – motivate employees towards the achievement of annual Company results; – the percentage of EC is based on the level of their position, accountability, performance and external market data. – reward the results and behaviours consistent with the Company’s objectives and values; and For FY2011 a performance hurdle relating to the participants adherence to the Company’s Code of Ethics and Conduct – reinforce direct and individual accountability for achieving and key Company policies such as OH&S management, financial targets. Discrimination, Bullying and Harassment was implemented for all The STI Scheme is currently uncapped for all executives except David Jones employees entitled to participate in the STI Scheme the CEO and Finance Director, that is, STI payments for above with any breach by a participant resulting in the forfeiture of any budget performance are directly linked to the level of increase STI payment. in profit generated, and are subject to review and approval by Each Senior Executive also has a performance hurdle relating the Board. to the implementation of the agreed objectives of the FY2009

For personal use only use personal For The CEO and Finance Director’s annual STI has been capped at – FY2012 Strategic Plan. For FY2011 this measure also included 125% of their EC for FY2011and future years. the development of the Company’s strategy for the FY2013 – FY2016 period.

David Jones Annual Report 2011 David Jones Annual Report 2011 44 45 At the end of the financial year, there is a structured and formal STI Scheme evaluation process with a minimum of two review and sign off points per employee. The Remuneration and Nomination Committee compares the audited financial results to the hurdles and qualifiers of the Executive Directors and other Senior Executives for the purpose of validating the level of achievement, STI Scheme calculations and resultant STI Scheme payment. The Committee then makes a recommendation to the Board regarding the appropriateness of the STI Scheme payments based on audited financial results. Specific information relating to the STI Scheme payments for Executive Directors and other Senior Executives for FY2010 is detailed on page 55 of this Remuneration Report. The following is a summary of the performance measures for KMP: STI potential at budget as a percentage of EC % KMP NPAT CAPEX Costs Profit1 Sales GMROI2 P. Zahra 3 3 3 50 S. Goddard 3 3 3 50 A. Karp 3 3 3 45 P. Robinson 3 3 3 3 3 45 C. Daniels 3 3 3 3 45 S. Laing 3 3 3 3 3 45 M. Durbin 3 3 3 45 K McLachlan 3 3 3 40 B Riddington 3 3 3 40 P Bauchinger 3 3 30 1 Profit relates to functional responsibility and will be Earnings Before Tax, Buying Gross Profit or Stores Net Profit. 2 GMROI stands for Gross Margin Return on Investment.

4.3.2 Payment 4.4 Long Term Incentive Plans Once approved by the Board, the STI Scheme payments are David Jones currently provides a performance based LTI to its made to participants in cash, generally in October of each year, Senior Executives through the LTI Plan. The LTI Plan is designed unless participants have elected to make a pre-tax payment into to link employee reward to performance measures that drive their superannuation fund. sustainable growth in shareholder value. 4.3.3 Link to Company Performance The objectives of the LTI Plan are to: As the graph below demonstrates, there is a correlation between – align the interests of Senior Executives with the total STI Scheme payments for the Company and NPAT shareholder interests; growth over the last five financial years. NPAT is measured on an underlying basis and therefore excludes one off transactions. – balance short-term with long-term Company focus; and – retain high calibre Senior Executives by providing an attractive 200 equity-based incentive. 170.8

168.1 Refer to Appendix One (on page 54) for a summary of all

156.5 David Jones LTI and Retention Plans.

150 137.1 4.4.1 Participation

109.5 In principle, only Senior Executives who are able to directly 100 influence the long-term success of the Company and who exhibit a consistent level of high performance will be nominated for LTI Plan participation. Participation in the LTI Plan is subject to

For personal use only use personal For 50 annual Board approval in accordance with the LTI Plan Rules.

32.3 Participation in the plan for Executive Directors is subject to the 22.8 20.6 NPAT

10.4 approval of shareholders in accordance with ASX Listing Rules.

0 0.5 STI 07 08 09 10 11 The number of LTI rights granted to Senior Executives is derived from a percentage of EC. The percentage of EC is based on the Relationship between STI Payments and NPAT growth level of their position, accountability, performance and external Correlation of STI Payments to NPAT market data.

David Jones Annual Report 2011 David Jones Annual Report 2011 44 45 directors’ report: remuneration report

All LTI rights are nil exercise price rights and no consideration Total Shareholder Return (TSR) is paid when they vest. One right is equal to a maximum of one TSR is one of the performance measures for the FY2009 – share. Participants are prohibited from entering into transactions FY2011 Retention Plan and for select Senior Executives who are in financial products that operate to limit the economic risk of participants of the FY2009 – FY2012 retention plan. unvested rights including any hedging or similar arrangement. A summary of the Company’s Share Trading Policy is set out TSR measures the return a shareholder obtains from ownership on pages 22 to 23 of this Annual Report. of shares in the Company during a defined period of time and takes into account changes in the market value of the shares Allocations and movements in LTI Plan holdings of the KMP are and dividends paid. TSR is the share price appreciation over the detailed in Appendix Four – Equity Holdings of KMP. measurement period plus dividends, expressed as a percentage 4.4.2 Performance Measures of the investment and reflects the increase in value delivered to shareholders over the performance period. The past five years Vesting of rights is linked to at least one of two independently share performance and dividend payments are shown in the applying performance measures: Total Shareholder Return (TSR) table below: or Net Profit After Tax growth (NPAT). These are discussed further below. FY2011 FY2010 FY2009 FY2008 FY2007 All offers made are subject to the Corporations Act, ASX Share Price Listing Rules and the terms of the LTI Plan Rules. Pursuant to (Last day of each the LTI Plan Rules, the Board may amend, waive or replace the financial year) $3.00 $4.80 $5.05 $3.34 $5.63 performance measures in the event of significant events that Dividends per were not foreseen in the Company’s business plan for the period. share (cents) 28.0 30.0 28.0 27.0 22.0 The Company’s performance outcome against the target for TSR is measured against a peer group of companies over the each performance measure is assessed by the Committee at the relevant performance period. The Company’s performance is end of the relevant performance period. The Committee then assigned a percentile ranking based on its performance relative to makes a recommendation to the Board regarding the number of other companies comprising the comparator group (the highest rights that have vested to each of the Senior Executives based on ranking company being ranked at the 100th percentile). audited financial results. The comparator group is comprised of peer ASX 300 4.4.3 After Vesting companies, both non-retail and retail that, like the Company, are Once the rights have vested and converted to shares, the shares significantly impacted by consumer spending and sentiment and/ are retained in a holding lock. For the KMP, Board approval is or economic cycles. required to release the holding lock. The share prices used for the purpose of the TSR calculation The Company’s Share Trading Policy sets out the basis on which are determined as the average daily closing price over the Directors and Senior Executives may deal with their shares and three-month period immediately preceding the start and end LTI rights. A summary of these terms is set out on pages 22 to 23 of the performance period. The TSR of all the companies in of this Annual Report. the peer group, and the Company, are ranked at the end of 4.4.4 Link to Company Performance the performance period. There is no opportunity to retest the TSR performance. The Company has used a combination of TSR and NPAT as performance measures to ensure that executive reward is The primary reasons for using TSR as a performance measure directly linked to long term shareholder return. For LTI plans are as follows: vesting in FY2011 and FY2012, the measures against which – TSR is a fair reflection of the Company’s performance; performance is assessed are TSR and NPAT. For example, for grants subject to a TSR measure, executives will not derive any – TSR is a truly comparative external benchmark when value from the LTI grants unless the Company’s performance is measured against a well-selected peer group; and at least at the median of the comparator group at the end of the – TSR is the prevailing external measure most used by relevant performance period. companies and is well regarded by the market.

The operation of each of these performance measures and the For personal use only use personal For way in which they align with Senior Executive and shareholder interests is discussed below.

David Jones Annual Report 2011 David Jones Annual Report 2011 46 47 The table below shows David Jones’ TSR performance for the completed Plan offers. David Jones’ TSR performance for these offers has exceeded the median of the TSR peer group of companies and has resulted in a performance ranking in the top quartile of the peer group. PLAN OFFER TRANCHE DAVID JONES’ TSR RETURN % DAVID JONES’ PERFORMANCE RANKING FY2004–FY2006 165.3 Ranked in top quartile FY2005–FY2007 280.2 Ranked in top quartile FY2006–FY2008 104.2 Ranked in top quartile FY2007–FY2009 75.0 Ranked in top quartile FY2008–FY2010 0.98 Ranked above median FY2009–FY2011 Tranche 1 35.9 Ranked in top quartile Tranche 2 54.3 Ranked in top quartile Tranche 3 48.6 Ranked in top quartile FY2009–FY2012 Tranche 1 35.9 Ranked in top quartile Tranche 2 54.3 Ranked in top quartile Tranche 3 48.6 Ranked in top quartile

Net Profit After Tax (NPAT) 4.4.5 FY2009 – FY2011 Retention Plan NPAT growth can be directly linked to executive decision- Participation making and aligned to shareholder wealth, and accordingly was As noted in the Remuneration Report for FY2010 the Finance considered by the Board to be the most appropriate measure Director is the only remaining Plan participant. to be applied to both the FY2009 – FY2011 and the FY2009 – FY2012 Retention Plans. The FY2009 – FY2011 Retention Plan operated from 1 August 2008 to 30 July 2011 and has both performance and retention NPAT measure is the growth in NPAT on the previous year elements. Specifically, it is designed to achieve the following: measured on an underlying basis, which excludes one off transactions. NPAT growth was selected as the measure for – ongoing tenure and continuity of the skills and expertise of the the two Retention Plans due to the increased participation of Finance Director; Senior Executives in the FY2009 – FY2012 Retention Plan who – incentivise the Finance Director to continue to grow profit previously have not had exposure to equity based incentives. returns off the “top of the cycle” result in FY2008; NPAT is a performance measure that the Company has used for a number of years for its STI scheme and is therefore widely – incentivise the Finance Director to maximise shareholder understood by these executives. returns, particularly during a period of difficult economic conditions; and For Senior Executives and some other executives, both NPAT growth and TSR have been selected as the performance – ensure successful delivery of the Company’s Strategic Plan measures on the basis that they offer a balance between internal over this period. and external measures. The table below shows David Jones’ Performance Measures NPAT annual growth from FY2007: For the FY2009 – FY2011 Retention Plan NPAT and TSR were Financial Year NPAT Annual Growth % selected as the performance hurdles. Both measures can be directly linked to the performance of the Company and together FY2007 35.0 offer a balance between internal and external measures. There is FY2008 25.2 no retesting of either hurdle.

For personal use only use personal For FY2009 14.2 FY2010 9.1 FY2011 (1.5)

David Jones Annual Report 2011 David Jones Annual Report 2011 46 47 directors’ report: remuneration report

Net Profit After Tax Vesting Schedule FY2008 is the base year for measurement of NPAT growth The grant comprises three tranches corresponding to each of and is measured on an underlying basis, which excludes one the FY2009, FY2010, and FY2011 years. Whilst the rights are off transactions. The annual NPAT target is 5% growth and the granted subject to attaining NPAT and TSR targets, a staggered stretch is at 10%, with pro-rata between 5% and 10%. grant allocation (30%/ 30%/ 40%) was used to ensure ongoing incentive during the life of the plan. 50% of the tranche vests where NPAT growth reaches target and 100% of the tranche vests when NPAT growth reaches the The table below outlines the proportion of rights that have stretch level. There is no further upside for the Finance Director vested in each year of the plan. for NPAT over this maximum level. For FY2011 vesting was based on the achievement of the Total Shareholder Return stretch performance level for TSR and between target and FY2008 is the base year for measurement of TSR. The TSR stretch performance level for NPAT (70% vesting of rights with target is set at the 50th percentile of the Company’s current TSR a PAT performance hurdle). comparator group and stretch at the 75th percentile, with pro Over the life of the plan 94% of the total potential allocation of rata between 50th and 75th. Half of the agreed proportion of rights vested as a result of the performance measures being met. shares will vest at the 50th percentile of the comparator group, and the maximum vesting occurs when TSR reaches the 75th Service Conditions percentile of the comparator group. TSR is measured annually As the Finance Director fulfilled the service conditions all vested for each tranche. rights that have met their performance condition have converted to shares on the basis of one share for every vested right. Under the terms of the plan, during FY2011 the Finance Director received the cash equivalent of dividends that would otherwise be paid had the vested rights been shares in the Company. The Company pays these dividends as ordinary time earnings and deducts tax as required by the executive’s marginal tax rate.

A summary of the rights that vested based on the achievement of the performance measures is shown below: Tranche FY Measure Weighting Achievement % Vested Allocation date 1 2009 NPAT 50% Stretch 15% October 2011 TSR 50% Stretch 15% 2 2010 NPAT 50% Stretch 15% October 2011 TSR 50% Stretch 15% 3 2011 NPAT 50% Between target and stretch 14% October 2011 TSR 50% Stretch 20%

Total 94% October 2011 For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 48 49 4.4.6 Executive FY2009 – FY2012 Retention Plan The grant comprises four tranches corresponding to each of the Based on the success of the FY2006 – FY2008 Retention Plan FY2009, FY2010, FY2011 and FY2012 years. Whilst the rights are where 100% of executive participants were retained, David subject to attaining certain performance and service conditions, Jones implemented a retention plan that operates over a four a staggered vesting schedule (20%/ 20%/ 20%/ 40%) has been year period aligned with the Company’s FY2009 – FY2012 designed to promote retention across the plan period and ensure Strategic Plan. employees are incentivised through the life of the plan. This plan replaced the FY2006 – FY2008 Retention Plan as well Performance Measures as the LTI Plans grants for FY2009 – FY2011. For the FY2009 – FY2012 Retention Plan all participants are assessed based on performance against NPAT. In addition some The plan is designed to achieve the following: key executives have the additional performance measure of – ongoing tenure and continuity of the skills and expertise of relative TSR. NPAT and TSR were selected as the performance key executives; hurdles on the basis that both measures can be directly linked to the performance of the Company and together offer a balance – incentivise key executives to maximise shareholder return, between internal and external measures. TSR particularly aligns particularly during the downturn across FY2009 and the interest of shareholders and employees, and has been applied FY2010; and when the executive’s role directly influences capital management. – ensure delivery of the Company’s FY2009 – FY2012 There is no retesting of either hurdle. Strategic Plan. Net Profit After Tax Participation The NPAT performance measure is the growth in NPAT In line with previously approved plans, this plan is designed to adjusted for one off transactions. FY2008 is the base year for protect the ongoing success of David Jones by retaining key measurement, however NPAT growth targets are set each year executives. In 2008, Management recommended and the Board with the target set at 5% NPAT growth with stretch level set at approved that 14.5 million rights be granted to 106 employees 10% NPAT growth. (excluding the Finance Director). Fifty percent of each tranche will vest when NPAT reaches target. When NPAT reaches the stretch level, 100% of the tranche vests. There is no further upside for participants for NPAT over this maximum level.

Providing the service conditions outlined below are satisfied, the following summary shows the vesting schedule where NPAT is the only measure: When shares Tranche FY % Vesting Measure Weighting vest/are allocated 1 FY2009 20% NPAT 100% October 2010 2 FY2010 20% NPAT 100% October 2011 3 FY2011 20% NPAT 100% October 2011 4 FY2012 40% NPAT 100% October 2012 Total 100% NPAT 100%

Total Shareholder Return In addition to the NPAT measure, selected executives (including all Senior Executives) have relative TSR as an additional performance measure, given the ability of these roles to directly influence capital management.

For personal use only use personal For FY2008 is the base year for measurement of TSR. The TSR target is set at the 50th percentile of the Company’s current TSR comparator group and stretch at the 75th percentile, with pro rata between the 50th and 75th percentile. At the 50th percentile of the comparator group the performance condition for each tranche will be 50% satisfied. When TSR reaches the 75th percentile of the comparator group the financial performance condition is 100% satisfied. TSR is measured annually for each tranche.

David Jones Annual Report 2011 David Jones Annual Report 2011 48 49 directors’ report: remuneration report

Performance outcome For FY2011 vesting was based on the achievement of the stretch performance level for TSR and between target and stretch performance level for NPAT (70% vesting of rights with an NPAT performance hurdle). Providing the service conditions outlined below are satisfied the following summary shows the vesting schedule incorporating both NPAT and TSR: Tranche FY % Vesting Measure Weighting Allocation 1 FY2009 10% NPAT 70% October 2010 10% TSR 30% 2 FY2010 10% NPAT 70% October 2011 10% TSR 30% 3 FY2011 10% NPAT 50% October 2011 10% TSR 50% 4 FY2012 20% NPAT 50% October 2012 20% TSR 50% Total 100% NPAT 58% TSR 42%

Service Conditions Subject to the employee fulfilling certain service conditions and in particular, continuous employment aligned to the date of each share allocation, rights will vest and convert to shares and be retained in a holding lock. During a period where a participant holds rights that have met their financial performance conditions and the shares are not allocated, the participant is entitled to the cash equivalent of dividends that would otherwise be paid. The Company pays these dividends as ordinary times earnings and deducts tax as required by the employee’s marginal tax rate. A summary of this and other LTI Plans can be found in Appendix One (on page 54) of this report. Additional grants At the 2010 AGM held on 3 December 2010, the Company sought, and was granted, approval to allocate an additional grant of rights to the CEO and Finance Director under the terms of the FY2009 – FY2012 Retention Plan. In addition, a number of additional rights were granted on 1 November 2010 to those Senior Executives whose role in the Company changed during the year. The following table outlines terms of the additional rights that were granted to the KMP. The performance measures relating to the rights are consistent with that outlined in the table above. Maximum number Role Tranche of rights TSR weighting NPAT weighting Shares allocated CEO 3 250,000 50% 50% 4 250,000 50% 50% Finance Director 4 250,000 50% 50% GE Operations 3 200,000 50% 50% 4 200,000 50% 50% GE Financial Services 3 112,500 50% 50% October 2012 For personal use only use personal For 4 112,500 50% 50% GE Fashion & Beauty 3 137,500 50% 50% 4 137,500 50% 50% GE Marketing 3 100,000 50% 50% 4 100,000 50% 50%

David Jones Annual Report 2011 David Jones Annual Report 2011 50 51 4.5 Deferred Employee Share Plan (DESP) In light of the changes announced as part of the 2009 Federal Budget, the Board approved the suspension of the DESP to new share acquisitions effective 4 June 2009. The DESP remains suspended. Shareholders approved the DESP at the Annual General Meeting held on 23 November 1998. This plan provides eligible employees the opportunity to acquire an ownership interest in the Company. Eligible employees may salary sacrifice a minimum of $3,000 per annum to acquire ordinary shares in the capital of the Company each year. Under the rules of the DESP, the Board may impose relevant requirements, being vesting conditions and other conditions before the participant can withdraw shares from the DESP. When a participating employee’s employment ends, they will receive the Company’s shares held on their behalf except where relevant requirements have been imposed by the Board and are not met, or where an employee has been dismissed as a result of fraudulent or wrongful conduct, in which case, the Board has the discretion to require forfeiture of any shares under the plan.

5. SUMMARY OF EMPLOYMENT CONTRACTS The details of Senior Executive remuneration including fixed remuneration (EC), STI Scheme, LTI Plan and the Retention Plan are disclosed elsewhere in this Remuneration Report. During the past twelve months the Company has continued to focus on aligning contracts of employment and terms and conditions for Senior Executives with the intent of securing the leadership team and ensuring continuity of the Company’s performance and shareholder returns. Company exposure has been reduced by the establishment of minimum notice periods for executive initiated termination to six months, capping termination payment at either six or twelve months and by including restrictive covenants in all contracts. The following summarises the termination provisions of employment contracts for Senior Executives:

TERMINATION BY COMPANY TERMINATION BY EXECUTIVE Paul Zahra If termination without cause, 12 months’ Can terminate by giving 6 months’ written notice (CEO) notice is required. unless employment is to be resumed with specified competitors, in which case 12 months’ notice is (Rolling contract from EC: EC would be paid for 12 months required, or if termination is to work or travel previous Senior Executive (reflecting notice provisions). overseas, in which case 3 months’ notice is required role continues to apply) STI scheme and LTI Plan: based on EC: Entitled to EC up to termination date. performance, entitled to pro-rata payment for vesting scheduled to occur within STI Scheme and LTI Plan: entitled to STI Scheme notice period. and LTI Plan incentives that have accrued to date of resignation. Stephen Goddard If termination is without cause, 12 months’ The Finance Director can terminate his (Finance Director) notice is required. appointment by giving 12 months’ written notice. The Finance Director is prevented from resuming Rolling contract EC: Entitled to 12 months’ notice. employment with specified competitors for a period of 12 months following termination. Other Senior Executives The Company can terminate other executives Other executives can terminate their appointment by giving 12 months’ notice in writing. EC would by giving 6 months’ written notice unless Rolling contracts be paid for 12 months. employment is to be resumed with specified competitors, in which case 12 months notice is required. The Board is satisfied that the termination arrangements of all Senior Executives are reasonable, having regard to Australian

employment practices and after seeking and considering independent advice where appropriate. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 50 51 directors’ report: remuneration report

6. REMUNERATION OF NON-EXECUTIVE DIRECTORS Remuneration Philosophy and Objectives The Company’s remuneration policy is designed to attract and retain appropriately skilled and experienced Non-Executive Directors best able to protect the rights and interests of shareholders and uphold accountability to shareholders for the Company’s performance. The remuneration of Non-Executive Directors is not linked in any way to the performance of the Company thus ensuring Director independence and impartiality is maintained. Remuneration Structure Non-Executive Directors’ fees are recommended by the Remuneration and Nominations Committee and determined by the Board having regard to the following: – the Company’s existing remuneration policies; – independent remuneration advice; – fees paid by comparable companies; – the level of fees required to attract and retain experienced and high calibre Non-Executive Directors; and – both the responsibilities of, and time commitments required from, each Director to carry out their duties. Remuneration and benefits specialists with experience in Board remuneration, recommend fee levels, which are considered in detail by the Remuneration and Nominations Committee. Recommended fee levels are based on survey data of comparable companies and analysis of fee structures for Non-Executive Directors in a cross section of companies, including retail. Non-Executive Directors cannot participate in either the STI Scheme or LTI Plan. In accordance with a resolution of shareholders at the 28 November 2008 Annual General Meeting, the maximum aggregate amount to be paid to Non-Executive Directors is an aggregate of $2,300,000. For FY2011 the fees for Non-Executive Directors were increased by 6% in recognition of: – the freezing of base fee levels in 2009 meaning that the last fee review was in 2008; and – the general market increases in Non-Executive remuneration based on market benchmarking provided by an independent organisation. The Non-Executive Directors base fees for FY2011 are as follows: Remuneration & Board Audit Committee Nominations Committee Property Committee Deputy Chairman Chairman Member Chairman Member Chairman Member Chairman Member $ $ $ $ $ $ $ $ $ 2011 fees 482,100 279,600 181,300 45,300 24,900 30,200 19,900 45,300 25,100 2010 fees 454,800 263,800 171,000 42,700 23,500 28,500 18,800 42,700 23,700

Retirement Benefit Retirement benefits for Non-Executive Directors are closed to participation for directors appointed after 14 October 2003. Contributions to the retirement benefit plan for Non-Executive Directors (other than notional interest adjustments based on the retirement allowance balance) were discontinued from October 2004. Any amounts that had been previously accrued were crystallised to be held until such time as the Director retires from the Board. Details of the accrued retirement allowance balances for each of the Non-Executive Directors are as follows: Balance at Interest to Balance at 31 July 2010 30 July 2011 30 July 2011 Non-Executive Director $ $ $ Robert Savage AM 293,793 18,390 312,183

John Coates AC 349,687 21,889 371,576 For personal use only use personal For Reginald Clairs AO 180,412 11,293 191,705 John Harvey 120,595 7,549 128,144 Katie Lahey 309,339 19,363 328,702 Total 1,253,826 78,484 1,332,310 Details of the remuneration of the Non-Executive Directors for the financial year ended 30 July 2011 and the previous financial year are set out in Appendix Two (on page 55) and Appendix Three (on page 56) of this Remuneration Report.

David Jones Annual Report 2011 David Jones Annual Report 2011 52 53 7. REMUNERATION OF KEY MANAGEMENT PERSONNEL KMP are persons having the authority and responsibility for planning, directing and controlling the Company’s activities directly or indirectly, including the Directors of David Jones and the five highest paid Senior Executives. The following persons were KMP of the Consolidated Entity at any time during the financial year: Name Title Period of Responsibility Executive Directors Paul Zahra Chief Executive Officer and Executive Director 1 August 2010 – 30 July 2011 Stephen Goddard Finance Director and Executive Director 1 August 2010 – 30 July 2011 Non-Executive Directors Robert Savage AM Chairman and Independent Non-Executive Director 1 August 2010 – 30 July 2011 John Coates AC Deputy Chairman and Independent Non-Executive Director 1 August 2010 – 30 July 2011 Reginald Clairs AO Independent Non-Executive Director 1 August 2010 – 30 July 2011 John Harvey Independent Non-Executive Director 1 August 2010 – 30 July 2011 Katie Lahey Independent Non-Executive Director 1 August 2010 – 30 July 2011 Peter Mason AM Independent Non-Executive Director 1 August 2010 – 30 July 2011 Philippa Stone Independent Non-Executive Director 1 August 2010 – 30 July 2011 Senior Executives Antony Karp Group General Manager – Retail Development 1 August 2010 – 30 January 2011 Group Executive – Retail Development 31 January 2011 – 30 July 2011 Brett Riddington Group Executive – Marketing 31 January 2011 – 30 July 2011 Cate Daniels Group General Manager – Retail Operations 1 August 2010 – 30 January 2011 Group Executive – Operations 31 January 2011 – 30 July 2011 Karen McLachlan Group General Manager – Information Technology 1 August 2010 – 30 January 2011 Group Executive – Information Technology 31 January 2011 – 30 July 2011 Matthew Durbin Group Executive – Financial Services 31 January 2011 – 30 July 2011 Patrick Robinson Group General Manager – Home and Food 1 August 2010 – 30 January 2011 Group Executive – Home and Food 31 January 2011 – 30 July 2011 Paula Bauchinger Group General Manager – Human Resources 1 August 2010 – 30 January 2011 Group Executive – Human Resources 31 January 2011 – 30 July 2011 Sacha Laing Group Executive – Fashion and Beauty 31 January 2011 – 30 July 2011 Colette Garnsey Group General Manager – Apparel, Accessories, Footwear & Cosmetics 1 August 2010– 29 April 2011 Damian Eales Group General Manager – Financial Services and Marketing 1 August 2010 – 28 January 2011 Shareholdings of the KMP and changes during the year can be found in Note 27 of the Financial Statements. Refer to Appendix Two (on page 55): Remuneration of KMP and five highest paid executives for the Year Ended 30 July 2011.

Refer to Appendix Three (on page 56): Remuneration of KMP and five highest paid executives for the Year Ended 31 July 2010. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 52 53 directors’ report: remuneration report

APPENDIX ONE – SUMMARY OF LONG TERM INCENTIVE AND RETENTION PLANS

FEATURE FY2009 – FY2012 OFFER FY2009 – FY2011 OFFER OFFERED TO Senior Executives Finance Director VESTING DATE Staggered up to October 2012 October 2011 PERFORMANCE MEASURES TSR compared to peer group and NPAT TSR compared to peer group and NPAT RETESTING RULES No Retest PLAN STATUS Tranche 1 and 2 fully vested at stretch Tranche 1 and 2 vested at stretch performance Tranche 3 vested at stretch for TSR and 3rd and final tranche vested at stretch for TSR between target and stretch for NPAT and between target and stretch for NPAT Final Tranche performance period not yet concluded ASX LISTED RETAILERS PEER GROUP FOR Funtastic Limited, Harvey Norman Holdings Fantastic Holdings Limited, Funtastic Limited, TSR COMPARATOR Limited, JB Hi-Fi Limited, Metcash Limited, Nick Harvey Norman Holdings Limited, JB Hi-Fi Scali Limited, Orotongroup Limited, Specialty Limited, Metcash Limited, Nick Scali Limited, Fashion Group Limited, Super Retail Group Orotongroup Limited, Specialty Fashion Group Limited and Woolworths Limited.1 Limited, Super Retail Group Limited and Woolworths Limited.1 NON-RETAILERS THAT DEMONSTRATE CYCLICAL PATTERNS PEER GROUP FOR APN News & Media Limited, Consolidated APN News & Media Limited, Austar United TSR COMPARATOR Media Holdings Limited, Fairfax Media Limited, Communications Limited, Consolidated Media Fisher & Paykel Appliances Holdings Limited, Holdings Limited, Fairfax Media Limited, Flight Centre Limited, Globe International Fisher & Paykel Appliances Holdings Limited, Limited, GUD Holdings Limited, Breville Flight Centre Limited, GUD Holdings Limited, Group Limited, Kresta Holdings Limited, Pacific Breville Group Limited, Southern Cross Media Brands Limited, PMP Limited, Salmat Limited, Group, Pacific Brands Limited, PMP Limited, Seven Group Limited, STW Communications Premier Investments Limited, Salmat Limited, Group Limited, Ten Network Holdings Seven Group Limited, STW Communications Limited, Wesfarmers Limited and Seven West Group Limited, Ten Network Holdings Media Limited.1 Limited, Wesfarmers Limited and Seven West Media Limited.1

1 The following changes have occurred to organisations in the TSR peer group during FY2011: – Clive Peeters and Austereo delisted from the ASX during FY2011 and have been removed from the Peer Group.

– The table has been updated to recognise changes of name for several entities during FY2011. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 54 55 APPENDIX TWO – THE REMUNERATION OF KMP FOR THE YEAR ENDED 30 JULY 2011

Other Post-Employment Long-Term Share-Based Short-Term Employee Benefits Benefits Benefits Payment Percentage Percentage Cash Other Long of Remun- of Remun- Equivalent Cash Non Retire- Service Term- Total eration in eration Cash Salary of Bonus Monetary ment Leave ination LTI Plan Compen- LTI Plan Performance & Fees4 Dividends5 (STI) Benefits Other Super Benefits1 Accrual Benefits Rights2,3 sation Rights related $ $ $ $ $ $ $ $ $ $ $ $ % Executive Directors Paul Zahra 1,347,248 88,571 – 13,055 900 21,570 – 88,921 – 1,041,619 2,601,884 40% 40% Stephen 950,138 460,285 – 14,055 1,220 51,328 – 20,815 – 999,786 2,497,627 40% 40% Goddard Non-Executive Directors Robert 470,586 – 13,055 100 27,047 18,390 – – – 529,178 – – Savage AM John Coates 303,520 – – 100 15,247 21,889 – – – 340,756 – – AC Reginald 192,253 – – 100 15,247 11, 293 – – – 218,893 – – Clairs AO John Harvey 207,053 – – 100 15,247 7,549 – – – 229,949 – – Katie Lahey 182,153 – – 100 15,247 19,363 – – – 216,863 – – Peter 187,120 – – 100 15,247 – – – – 202,467 – – Mason AM Philippa 212,353 – – – 15,247 – – – – 227,600 – – Stone Senior Executives Antony 708,702 88,571 – 13,091 1,220 21,619 – 15,669 – 401,162 1,250,034 32% 32% Karp Brett 207,711 7,428 – 1,528 335 8,750 – 4,287 – 212,878 442,917 48% 48% Riddington Cate 437,608 8,857 – 11, 2 27 717 24,367 – 7, 811 – 547,239 1,037,826 53% 53% Daniels Karen 569,866 70,857 – 11,749 1,172 15,247 – 10,518 – 320,930 1,000,339 32% 32% McLachlan Matthew 226,813 8,357 – – 209 11, 685 – 28,490 – 255,092 530,646 48% 48% Durbin Patrick 663,659 88,571 – 9,227 3,891 21,618 – 15,758 – 401,162 1,203,886 33% 33% Robinson Paula 401,474 30,114 – 997 900 17,443 – 9,494 – 136,395 596,817 23% 23% Bauchinger Sacha Laing 231,615 8,357 – 5,406 693 12,548 – 24,894 – 281,875 565,388 50% 50% Collette 753,978 – 4,997 398 34,583 – 31,499 – (801,345) 24,110 – – Garnsey Damian 307,188 – 1,000 497 7,600 – (82,789) – (801,345) (567,849) – – Eales Total 8,561,038 859,968 – 99,387 12,752 366,887 78,484 175,367 – 2,995,448 13,149,331

Notes to the table:

1 ‘Other retirement benefits’ represents an adjustment equivalent to deposit interest paid by trading banks on previously frozen Directors’ For personal use only use personal For retirement allowance. 2 ‘LTI Plan rights’ is the independent value ascribed to LTI Plan rights provided to Senior Executives as part of their remuneration. 3 Colette Garnsey and Damien Eales forfeited rights under the FY2009–FY2012 Retention plan upon termination of employment. Any share based payments expensed previously recognised under AASB 2 – Share Based Payments in respect of the forfeited rights have been reversed. 4 The movement in Cash Salary for those Senior Executives who were reported as KMP in the FY2010 annual report reflects increases received in the annual salary review process. The movement in fees for Non-Executive Directors reflects the 6% increase in fees noted in this report. 5 Under the terms of the FY2009–FY2011 and FY2009–FY2012 retention plans Senior Executives receive the cash equivalent of dividends (CED) on rights that have vested based on company performance but have not yet converted to shares. FY2011 is the final year of entitlement to any CED payment.

David Jones Annual Report 2011 David Jones Annual Report 2011 54 55 directors’ report: remuneration report

APPENDIX Three – THE REMUNERATION OF KMP FOR THE YEAR ENDED 31 JULY 2010

Other Long- Post-Employment Term Share Based Short-Term Employee Benefits Benefits Benefits Payment Percentage Percentage of Other Long of Remun- Remun- Cash Non Retire- Service Term- Total eration in eration Cash Salary Bonus Monetary ment Leave ination LTI Plan Compen- LTI Plan Performance & Fees4,5 (STI) Benefits Other Super Benefits1 Accrual Benefits Rights2 sation Rights Related $ $ $ $ $ $ $ $ $ $ % % Executive Directors Paul Zahra 856,148 566,580 2,000 901 20,894 – 13,746 – 798,712 2,258,981 35% 60% (new CEO) Stephen 1,145,093 865,903 13,400 1,222 33,394 – 15,528 – 1,166,859 3,241,399 36% 63% Goddard Mark 2,068,146 – 12,400 901 19,086 – 29,329 1,500,000 (2,228,708) 1,401,154 – – McInnes3 (former CEO) Non-Executive Directors Robert 463,978 – 12,400 100 14,523 12,022 – – – 503,023 – – Savage AM John 291,977 – – 100 14,523 14,310 – – – 320,910 – – Coates AC Reginald 184,978 – – 100 14,523 7,383 – – – 206,984 – – Clairs AO John 199,178 – – 100 14,523 4,935 – – – 218,736 – – Harvey Katie Lahey 175,277 – – 100 14,523 12,659 – – – 202,559 – – Peter 180,178 – – 100 14,523 – – – – 194,801 – – Mason AM Philippa 76,966 – – – 5,880 – – – – 82,846 – – Stone Senior Executives Damian 748,633 211, 0 6 0 988 901 14,523 – 16,192 – 714,253 1,706,550 42% 54% Eales Colette 785,658 182,688 15,925 501 44,493 – 9,036 – 714,253 1,752,554 41% 51% Garnsey Antony 777,292 166,500 14,411 1,222 20,895 – 24,661 – 714,253 1,719,234 42% 51% Karp Patrick 757,064 168,848 9,512 2,993 20,894 – 11,4 02 – 714,253 1,684,966 42% 52% Robinson Karen 590,246 316,000 11,196 901 14,523 – 8,998 – 571,402 1,513,266 38% 59% McLachlan Total 9,300,812 2,477,579 92,232 10,142 281,720 51,309 128,892 1,500,000 3,165,227 17,007,963

Notes to the table: 1 Other retirement benefits represents an adjustment equivalent to deposit interest paid by trading banks on previously frozen Directors’ retirement allowance. 2 LTI Plan rights is the independent value ascribed to LTI Plan rights provided to Senior Executives as part of their remuneration. Further details of the LTI Plan can be found in section 4 of the Remuneration Report. 3

For personal use only use personal For Mark McInnes’ contract was mutually terminated on the 17th June 2010. As a result he forfeited his LTI and Retention Rights. Any share based payments expensed previously recognised under AASB 2 – Share Based Payments in respect of the forfeited rights have been reversed. Mark McInnes’ termination payment was $1,500,000, he also received $445,421 of leave entitlements, which were reported as leave accruals in previous annual reports. 4 The movements in Salary for the Executives when compared to the 2009 Annual Report is due to the payment of the cash equivalent of dividends from the FY2009 – FY2012 and FY2009 – FY2011 Retention Plans. These payments occurred in FY2010 but not in FY2009. 5 The movement in Fees for the Non-Executive Directors when compared to the 2009 Remuneration Report is due the introduction of the Property Committee and associated fees in October 2008. The last fee review was in October 2008 and only 10 months of these October 2008 increases are represented in the FY2009 Remuneration Report where as these fees are represented for a full 12 months in the FY2010 Remuneration Report.

David Jones Annual Report 2011 David Jones Annual Report 2011 56 57 APPENDIX FOUR – EQUITY HOLDINGS OF KMP Long Term Incentive Plan Rights Holdings of Key Management Personnel The following tables show the movements in LTI Plan rights holdings of KMP for the current financial year:

For the year ended 30 July 2011

Granted as Vested and Forfeited/ Fair Value Fair Value Holding at Remuner- Converted Lapsed during Holding at of Right of Right Name LTI Plan 31 July 20102 ation2 during the Year2 the Year3 30 July 20112 (TSR) (NPAT) Number Number Number Number Number $ $ Directors Paul Zahra 09-12 retention offer – Tranche 1 200,000 – (200,000) – – 2.09 2.97 – Tranche 2 200,000 – – – 200,000 1.64 2.74 – Tranche 3 200,000 – – (30,000) 170,000 1.65 2.74 – Tranche 4 400,000 – – – 400,000 1.57 2.51 09-12 additional offer – Tranche 3 – 250,000 – (37,500) 212,500 3.64 3.95 – Tranche 4 – 250,000 – – 250,000 3.45 3.95 $996,000 $202,500 Stephen 08-10 offer 173,156 – (156,741) (16,415) – 1.69 3.02 Goddard1 09-11 retention offer – Tranche 1 519,677 – – – 519,677 1.63 1.82 – Tranche 2 519,677 – – – 519,677 1.59 1.82 – Tranche 3 692,904 – – (103,936) 588,968 1.61 1.82 09-12 additional offer – Tranche 4 – 250,000 – – 250,000 3.45 3.95 $780,570 $361,052 Executives Antony Karp 09-12 retention offer – Tranche 1 200,000 – (200,000) – – 2.09 2.97 – Tranche 2 200,000 – – – 200,000 1.64 2.74 – Tranche 3 200,000 – – (30,000) 170,000 1.65 2.74 – Tranche 4 400,000 – – – 400,000 1.57 2.51 $996,000 $90,000 Karen 09-12 retention offer McLachlan – Tranche 1 160,000 – (160,000) – – 2.09 2.97 – Tranche 2 160,000 – – – 160,000 1.64 2.74 – Tranche 3 160,000 – – (24,000) 136,000 1.65 2.74 – Tranche 4 320,000 – – – 320,000 1.57 2.51

$796,800 $72,000 For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 56 57 directors’ report: remuneration report

APPENDIX FOUR – EQUITY HOLDINGS OF KMP ContinueD Long Term Incentive Plan Rights Holdings of Key Management Personnel continued For the year ended 30 July 2011

Granted as Vested and Forfeited/ Fair Value Fair Value Holding at Remuner- Converted Lapsed during Holding at of Right of Right Name LTI Plan 31 July 20102 ation2 during the Year2 the Year3 30 July 20112 (TSR) (NPAT) Number Number Number Number Number $ $ Patrick 09-12 retention offer Robinson – Tranche 1 200,000 – (200,000) – – 2.09 2.97 – Tranche 2 200,000 – – – 200,000 1.64 2.74 – Tranche 3 200,000 – – (30,000) 170,000 1.65 2.74 – Tranche 4 400,000 – – – 400,000 1.57 2.51 $996,000 $90,000 Sacha 09-12 retention offer Laing – Tranche 2 45,000 – – – 45,000 1.64 2.74 – Tranche 3 45,000 – – (13,500) 31,500 1.65 2.74 – Tranche 4 90,000 – – – 90,000 1.57 2.51 09-12 additional offer – Tranche 3 – 137,500 – (20,625) 116 , 875 4.03 4.35 – Tranche 4 – 137,500 – – 137,500 3.88 4.35 $102,375 Matthew 09-12 retention offer Durbin – Tranche 2 45,000 – – – 45,000 1.64 2.74 – Tranche 3 45,000 – – (6,750) 38,250 1.65 2.74 – Tranche 4 90,000 – – – 90,000 1.57 2.51 09-12 additional offer – Tranche 3 – 112 , 50 0 – (16,875) 95,625 4.03 4.35 – Tranche 4 – 112 , 50 0 – – 112 , 50 0 3.88 4.35 $70,875 Cate 09-12 retention offer Daniels – Tranche 1 20,000 – (20,000) – – 2.09 2.97 – Tranche 2 20,000 – – – 20,000 1.64 2.74 – Tranche 3 20,000 – – (6,000) 14,000 1.65 2.74 – Tranche 4 40,000 – – – 40,000 1.57 2.51 09-12 additional offer – Tranche 3 – 200,000 – (30,000) 170,000 4.03 4.35 – Tranche 4 – 200,000 – – 200,000 3.88 4.35

$99,600 $108,000 For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 58 59 APPENDIX FOUR – EQUITY HOLDINGS OF KMP ContinueD Long Term Incentive Plan Rights Holdings of Key Management Personnel continued For the year ended 30 July 2011

Granted as Vested and Forfeited/ Fair Value Fair Value Holding at Remuner- Converted Lapsed during Holding at of Right of Right Name LTI Plan 31 July 20102 ation2 during the Year2 the Year3 30 July 20112 (TSR) (NPAT) Number Number Number Number Number $ $ Paula 09-12 retention offer Bauchinger – Tranche 1 68,000 – (68,000) – – 2.09 2.97 – Tranche 2 68,000 – – – 68,000 1.64 2.74 – Tranche 3 68,000 – – (10,200) 57,800 1.65 2.74 – Tranche 4 136,000 – – – 136,000 1.57 2.51 $338,640 $30,600 Brett 09-12 retention offer Riddington – Tranche 2 40,000 – – – 40,000 1.64 2.74 – Tranche 3 40,000 – – (12,000) 28,000 1.65 2.74 – Tranche 4 80,000 – – – 80,000 1.57 2.51 09-12 additional offer – Tranche 3 – 100,000 – (15,000) 85,000 4.03 4.35 – Tranche 4 – 100,000 – – 100,000 3.88 4.35 $81,000 Damien 09-12 retention offer Eales – Tranche 1 200,000 – (200,000) – – 2.09 2.97 – Tranche 2 200,000 – – (200,000) – 1.64 2.74 – Tranche 3 200,000 – – (200,000) – 1.65 2.74 – Tranche 4 400,000 – – (400,000) – 1.57 2.51 $996,000 $3,776,000 Colette 09-12 retention offer Garnsey – Tranche 1 200,000 – (200,000) – – 2.09 2.97 – Tranche 2 200,000 – – (200,000) – 1.64 2.74 – Tranche 3 200,000 – – (200,000) – 1.65 2.74 – Tranche 4 400,000 – – (400,000) – 1.57 2.51 $996,000 $3,800,000

Notes: 1 As disclosed in the 2010 remuneration report, Mr Goddard’s Rights Vested at Stretch for EPS and above Target for TSR, effective 31 July 2010. 2 The numbers disclosed represent the number of rights allocated to each participant in the plan. The actual number of shares issued could differ based on Company performance. The holding at 31 July 2010 for Executives appointed during the year is the holding at the date of their appointment. 3 Rights forfeited during the year include rights forfeited due to either the service condition or performance condition not being met.

4 Non-Executive Directors are not entitled to participate in the LTI Plan and therefore no holdings are disclosed. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 58 59 consolidated statement of comprehensive income

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

2011 2010 Note $000 $000 Revenue from sale of goods 1,961,744 2,053,087 Cost of sales (1,194,474) (1,237,358) Gross profit 767,270 815,729 Other income 2 55,927 51,642 Employee benefits expenses (282,403) (316,438) Lease and occupancy expenses (178,184) (181,799) Depreciation and amortisation expenses 3 (45,876) (43,812) Advertising, marketing and visual merchandising expenses (32,820) (40,474) Administration expenses (20,800) (20,390) Net financing expenses 3 (7,789) (7,063) Other expenses (16,003) (15,364) Profit before income tax expense 239,322 242,031 Income tax expense 5 (71,183) (71,265) Profit after income tax expense attributable to equity holders of the parent entity 23 168,139 170,766

Other comprehensive income: Gains on cash flow hedges 1,429 743 Transfer of realised gains on hedges to profit and loss (928) (1,117 ) Income tax on items of other comprehensive income (150) 112 Total other comprehensive income/(loss) for the period, net of tax 351 (262) Total comprehensive income attributable to equity holders of the parent entity for the period 168,490 170,504

Earnings per share for profit attributable to the equity holders of the parent entity: Basic earnings per share (cents per share) 7 33.0 34.0 Diluted earnings per share (cents per share) 7 32.4 33.0

The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes to the Financial Statements. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 60 61 consolidated statement of financial position

At 30 July 2011 and 31 July 2010 David Jones Limited and its controlled entities

2011 2010 Note $000 $000 CURRENT ASSETS Cash and cash equivalents 8 11,703 17,594 Receivables 9 19,637 22,750 Inventories 10 288,850 282,346 Financial assets 11 – 14 Other assets 12 6,911 5,380 Total current assets 327,101 328,084

NON-CURRENT ASSETS Financial assets 11 12 12 Property, plant and equipment 13 798,416 761,565 Intangible assets 14 34,422 36,380 Deferred tax assets 15 54,410 68,483 Other assets 12 189 397 Total non-current assets 887,449 866,837 Total assets 1,214,550 1,194,921

CURRENT LIABILITIES Payables 16 216,429 244,529 Interest bearing liabilities 17 2,943 2,945 Current tax liabilities 18,654 22,957 Provisions 18 26,418 40,330 Financial liabilities 19 1,409 1,923 Other liabilities 20 280 616 Total current liabilities 266,133 313,300

NON-CURRENT LIABILITIES Interest bearing liabilities 17 129,000 101,000 Provisions 18 6,492 7,090 Other liabilities 20 27,445 29,293 Total non-current liabilities 162,937 137,383 Total liabilities 429,070 450,683 Net assets 785,480 744,238

EQUITY Contributed equity 21 525,105 502,199

For personal use only use personal For Reserves 22 74,647 66,734 Retained earnings 23 185,728 175,305 Total equity 785,480 744,238

The above Statement of Financial Position should be read in conjunction with the accompanying notes to the Financial Statements.

David Jones Annual Report 2011 David Jones Annual Report 2011 60 61 consolidated statement of changes in equity

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

Cash Flow Share Based Share Hedge Payments Retained Capital Reserve Reserve Earnings Total Note $000 $000 $000 $000 $000 For the 52 weeks ended 30 July 2011 Total equity at the beginning of the period 502,199 (1,337) 68,071 175,305 744,238 Profit for the period – – – 168,139 168,139 Other comprehensive income, net of tax – 351 – – 351 Total comprehensive income for the period – 351 – 168,139 168,490 Transactions with owners, recorded directly in equity: Dividends paid 6 – – – (157,716) (157,716) Issue of ordinary shares through Dividend Reinvestment Plan 27,512 – – – 27,512 Share based payments – – 5,846 – 5,846 On-market purchase of shares by Trust (4,743) – – – (4,743) Employee share purchase plan 137 – – – 137 Income tax – – 1,716 – 1,716 Total contributions by and distributions to owners 22,906 – 7,562 (157,716) (127,248) Total equity at the end of the period 525,105 (986) 75,633 185,728 785,480

For the 53 weeks ended 31 July 2010 Total equity at the beginning of the period 479,117 (1,075) 56,823 149,977 684,842 Profit for the period – – – 170,766 170,766 Other comprehensive income, net of tax – (262) – – (262) Total comprehensive income for the period – (262) – 170,766 170,504 Transactions with owners, recorded directly in equity: Dividends paid 6 – – – (145,438) (145,438) Issue of ordinary shares through Dividend Reinvestment Plan 27,612 – – – 27,612 Share based payments – – 9,487 – 9,487 On-market purchase of shares by Trust (4,614) – – – (4,614) Employee share purchase plan 84 – – – 84 Income tax – – 1,761 – 1,761 Total contributions by and distributions to owners 23,082 – 11,248 (145,438) (111,108) Total equity at the end of the period 502,199 (1,337) 68,071 175,305 744,238

The above Statement of Changes in Equity should be read in conjunction with the accompanying notes to the Financial Statements. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 62 63 consolidated cash flow statement

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

2011 2010 Note $000 $000 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers (inclusive of GST) 2,168,821 2,265,537 Payments to suppliers and employees (inclusive of GST) (1,967,589) (2,051,719) Commissions received 48,201 44,838 Interest received 401 268 Borrowing costs paid (7,548) (7,414) Income tax paid (59,848) (47,587) Net cash flows from operating activities 8 182,438 203,923

CASH FLOWS FROM INVESTING ACTIVITIES Payments for property, plant and equipment (80,941) (78,757) Payments for software (576) (1,464) Proceeds from sale of property – 558 Net cash flows used in investing activities (81,517) (79,663)

CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid on ordinary shares (130,204) (117, 826 ) Proceeds from/(repayment) of borrowings 28,000 1,000 On-market purchase of shares for Trust (4,743) (4,614) Proceeds from loan repayments under employee share plan 137 84 Net cash flows used in financing activities (106,810) (121,356) Net (decrease)/ increase in cash and cash equivalents (5,889) 2,904 Cash and cash equivalents at beginning of the financial year 14,649 11,745 Cash and cash equivalents at end of the financial year 8,760 14,649

Notes: (i) Reconciliation to the Statement of Financial Position Cash and cash equivalents is comprised of the following: Cash and cash equivalents 8 11,703 17,594 Bank overdraft 17 (2,943) (2,945) Cash and cash equivalents at end of the financial year 8,760 14,649

(ii) Non-cash financing and investing activities During the year, 5,805,636 shares (2010: 5,289,083) were issued under the Dividend Reinvestment Plan. Dividends settled in shares rather than cash amounted to $27.512 million (2010: $27.612 million).

The above Cash Flow Statement should be read in conjunction with the accompanying notes to the Financial Statements. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 62 63 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

CONTENTS 1 Summary of significant accounting policies 65 18 Provisions 88 2 Other income 76 19 Financial liabilities 89 3 Profit before income tax 76 20 Other liabilities 89 4 Segment reporting 77 21 Contributed equity 89 5 Income tax expense 78 22 Reserves 90 6 Dividends 80 23 Retained earnings 90 7 Earnings per share 81 24 Contingent liabilities 91 8 Cash and cash equivalents 81 25 Commitments for expenditure 94 9 Receivables 82 26 Auditor’s remuneration 94 10 Inventories 83 27 KMP disclosures 95 11 Financial assets 83 28 Employee share plans 102 12 Other assets 83 29 Consolidated entities 108 13 Property, plant and equipment 84 30 Related party disclosures 109 14 Intangible assets 85 31 Capital and financial risk management 110 15 Deferred tax assets and liabilities 86 32 Parent entity disclosures 117 16 Payables 86 33 Events subsequent to reporting date 117

17 Interest bearing liabilities 87 For personal use only use personal For

David Jones Annual Report 2011 64 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES David Jones Limited (Company) is a public company incorporated and operating in Australia and is listed on the ASX (trading under the symbol DJS). The consolidated Financial Statements for the 52 weeks ended 30 July 2011 comprise the Company and its subsidiaries (together referred to as the Consolidated Entity). Unless otherwise stipulated, all notes relate to the Consolidated Entity.

ACCOUNTING POLICY (a) Basis of preparation 66 (o) Fair value estimation 72 (b) Statement of compliance 66 (p) Impairment 72 (c) Business combinations 66 (q) Inventories 73 (d) Segment Reporting 66 (r) Property, plant and equipment 73 (e) New accounting standards and interpretations 67 (s) Intangibles 73 (f) Basis of consolidation 70 (t) Trade and other payables 74 (g) Revenue 70 (u) Interest bearing liabilities 74 (h) Expenses 70 (v) Provisions 74 (i) Leases 70 (w) Employee benefits 74 (j) Cash and cash equivalents 70 (x) Contributed Equity 74 (k) Receivables 71 (y) Dividends 74 (l) Derivative financial instruments 71 (z) Earnings per share 75 (m) Other financial assets 71 (aa) Income tax 75

(n) Foreign currency transactions 72 (ab) Goods and services tax (GST) 75 For personal use only use personal For

David Jones Annual Report 2011 65 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The estimates and underlying assumptions are reviewed on an continued ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects (a) Basis of preparation only that period, or in the period of the revision and future The Financial Statements have been prepared on an historical periods, if the revision affects both current and future periods. cost basis except that derivative financial instruments are stated at their fair value. The accounting policies have been consistently applied by each entity within the Consolidated Entity for all periods reported in The Company is of a kind referred to in ASIC Class order 98/100 the Financial Statements. dated 10 July 1998 (updated by CO 05/641 effective 28 July 2005) and in accordance with the Class Order, amounts in the (b) Statement of compliance Financial Statements and Directors’ Report have been rounded These General Purpose Financial Statements comply with to the nearest thousand dollars, unless otherwise stated. Australian Accounting Standards as issued by the Australian The preparation of financial statements in conformity with the Accounting Standards Board, and International Financial Australian Accounting Standards Board requires management Reporting Standards (IFRSs) as issued by the International to make judgements, estimates and assumptions that affect Accounting Standards Board (IASB). the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated (c) Business Combinations assumptions are based on historical experience and various The purchase method of accounting is used to account for all other factors that are believed to be reasonable under the business combinations. Cost is measured as the fair value of the circumstances, the results of which form the basis of making the assets given, equity instruments issued or liabilities incurred or judgements about carrying values of assets and liabilities that assumed at the date of exchange. Costs directly attributable are not readily apparent from other sources. Actual results may to the acquisition are expensed. The excess of the cost of differ from these estimates. The key estimates and assumptions acquisition over the fair value of the Consolidated Entity’s share that have a significant risk of causing a material adjustment to the of the identifiable net assets acquired is recorded as goodwill. carrying amounts of assets and liabilities within the next annual If the cost of acquisition is less than the Consolidated Entity’s reporting period include: share of fair value of the identifiable net assets of the subsidiary acquired, the difference is recognised directly in the Statement – Share-based payments: As disclosed in note 28, the of Comprehensive Income, but only after a reassessment of the Consolidated Entity calculates the share-based payments identification and measurement of the net assets acquired. expense using assumptions relating to future financial performance against targets, and the retention of (d) Segment Reporting eligible employees. An operating segment is a distinguishable component of the – Income taxes: Significant judgement is required in determining Consolidated Entity that is engaged in providing products or the provision for income taxes. There are transactions and services that are subject to risks and rewards that are different calculations undertaken during the ordinary course of business from those of other segments. The Consolidated Entity has for which the ultimate tax determination is uncertain. defined its chief operating decision maker as its Chief Executive Officer. A reportable operating segment is defined based on – Impairment of goodwill: As disclosed in note 1(p), the information used regularly by the chief operating decision maker. Consolidated Entity tests at each period end to determine The Consolidated Entity’s operating segments and relevant whether goodwill has suffered any impairment. The disclosures are outlined in note 4. recoverable amounts of cash-generating units have been determined based on a value in use calculation. As disclosed in note 14, these calculations use assumptions relating to cash flow projections. – Inventory valuation: As disclosed in note 1(q), the lower of cost and net realisable value is used to calculate the value of inventory at period end. Cost is determined using the

retail inventory method and estimated average department For personal use only use personal For mark-up ratios. – Provisions: As disclosed in notes 1(v) and 18, estimates are used in the calculation of provisions.

David Jones Annual Report 2011 David Jones Annual Report 2011 66 67 (e) New accounting standards and interpretations The following standards and amendments have been implemented by the Consolidated Entity and have had either minimal or no impact on these Financial Statements.

Application date for Impact on Consolidated Consolidated Entity for Application Entity’s Financial Financial year Reference Title Summary date of standard Statements ending: AASB 2009-5 Amendments to Australian Further amendments to the 1 January 2010 No major 30 July 2011 Accounting Standards following Standards: impact arising from the Annual AASBs 5, 8, 101, 107, 117, 118, Improvements Project 136, 139 AASB 2009-10 Classification of Rights Issues Further amendments 1 February 2010 No impact 30 July 2011 to AASB 132 AASB 2010-3 Amendments to Australian Further amendments to the 1 July 2010 No major 30 July 2011 Accounting Standards following Standards: impact arising from the Annual AASBs 3, 7, 121, 128, 131, Improvements Project 132, 139 Interpretation 19 Interpretation 19 This interpretation clarifies 1 July 2010 No impact 30 July 2011 Extinguishing Financial that equity instruments Liabilities with Equity issued to a creditor to Instruments extinguish a financial liability are “consideration paid” in accordance with paragraph 41

of IAS 39 For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 66 67 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

(e) New accounting standards and interpretations continued The following standards and amendments applicable to the Consolidated Entity were issued but not yet effective and they have not been applied by the Consolidated Entity in these Financial Statements.

Application date for Impact on Consolidated Consolidated Entity for Application Entity’s Financial Financial year Reference Title Summary date of standard Statements ending: AASB 9 Financial Instruments AASB 9 includes requirements 1 January 2013 No major 26 July 2014 for the classification and impact measurement of financial assets identified resulting from the first part of Phase 1 of the IASB’s project to replace IAS 39. AASB 2009-11 Amendments to Further amendments to the 1 January 2013 No major 26 July 2014 Australian Accounting following Standards: AASBs 1, 3, impact Standards arising from 4, 5, 7, 101, 102, 108, 112, 118, 121, identified AASB 9 127, 128, 131, 132, 136, 139, 1023 and 1038 and Interpretations 10 and 12 This Standard will be applied when AASB 9 is applied AASB 124 Related Party Disclosures The revised AASB 124 simplifies 1 January 2011 No major 28 July 2012 (Revised) the definition of a related party, impact clarifying its intended meaning and identified eliminating inconsistencies from the definition AASB 2009-12 Amendments to Further amendments to the 1 January 2011 No major 28 July 2012 Australian Accounting following Standards: impact Standards identified AASBs 5, 8, 108, 110, 112, 119, 133, 137, 139, 1023 and 1031 and Interpretations 2, 4, 16, 1039 and 1052 AASB 1053 Application of Tiers of This Standard establishes a 1 July 2013 As a Tier 1 26 July 2014 Australian Accounting differential financial reporting company, there Standards framework consisting of two will be no tiers of reporting requirements change to the for preparing general purpose Consolidated financial statements: Entity’s reporting framework Tier 1: Australian Accounting Standards

For personal use only use personal For Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements

David Jones Annual Report 2011 David Jones Annual Report 2011 68 69 Application date for Impact on Consolidated Consolidated Entity for Application Entity’s Financial Financial year Reference Title Summary date of standard Statements ending: AASB 2010-4 Amendments to Further Amendments to 1 January 2011 No impact 28 July 2012 Australian Accounting Australian Accounting Standards identified Standards arising from the Annual Improvements Project: AASBs 1, 7, 101, 134 and Interpretation 13 AASB 2010-5 Amendments to AASBs 1, 3, 4, 5, 101, 107, 112, 1 January 2011 No major 28 July 2012 Australian Accounting 118, 119, 121, 132, 133, 134, 137, impact Standards 139, 140, 1023 and 1038 and identified Interpretations 112, 115, 127, 132 and 1042 AASB 2010-6 Amendments to Disclosures on Transfers of 1 January 2011 No major 28 July 2012 Australian Accounting Financial Assets AASB 1 & AASB impact Standards 7 identified AASB 2010-7 Amendments to AASBs 1, 3, 4, 5, 7, 101, 102, 108, 1 January 2013 No major 26 July 2014 Australian Accounting 112, 118, 120, 121, 127, 128, 131, impact Standards arising 132, 136, 137, 139, 1023, and 1038 identified from AASB 9 and Interpretations 2, 5, 10, 12, 19 (December 2010) and 127 AASB 2010-8 Amendments to Deferred Tax: Recovery of 1 January 2012 No impact 27 July 2013 Australian Accounting Underlying Assets AASB 112 identified Standards AASB 10 Consolidated Financial IFRS 10 establishes a new control 1 January 2013 No impact 26 July 2014 Statements model that applies to all entities identified AASB 11 Joint Arrangements IFRS 11 uses the principle of 1 January 2013 No impact 26 July 2014 control in IFRS 10 to define identified joint control, and therefore the determination of whether joint control exists or may change. AASB 12 Disclosure of interests IFRS 12 includes all disclosures 1 January 2013 No impact 26 July 2014 in other entities relating to an entity’s interests in identified subsidiaries, joint arrangements, associates and structures entities.

For personal use only use personal For AASB 13 Fair value measurement IFRS 13 establishes a single 1 January 2013 No impact 26 July 2014 source of guidance under IFRS for identified determining the fair value of assets and liabilities.

David Jones Annual Report 2011 David Jones Annual Report 2011 68 69 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (iii) Interest continued Revenue is recognised as interest accrues using the effective (f) Basis of consolidation interest rate method, which is the rate that discounts estimated future cash receipts through the expected life of (i) Subsidiaries the financial instrument. Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, (h) Expenses to govern the financial and operating policies of an entity so as to (i) Operating lease expenses obtain benefits from its activities. In assessing control, potential Payments made under operating leases, where the lease voting rights that presently are exercisable or convertible are agreement includes predetermined fixed rate increases, are taken into account. The financial statements of subsidiaries are recognised in the Statement of Comprehensive Income on a included in the consolidated Financial Statements from the date straight-line basis over the term of the lease. Other operating that control commences until the date that control ceases. lease payments are expensed as incurred. Investments in subsidiaries are carried at their cost of acquisition Lease incentives received are recognised in the Statement of in the Company’s Financial Statements. Comprehensive Income as an integral part of the total lease For the purpose of consolidation, the assets and liabilities of the expense and spread over the lease term. David Jones Incentive Plan Trust (Trust) have been treated as (ii) Net financing expenses assets and liabilities of the Company. Net financing expenses comprise interest payable on borrowings (ii) Transactions eliminated on consolidation calculated using the effective interest method, foreign exchange Intra-group balances and any unrealised gains and losses or gains and losses, gains and losses on hedging instruments that income and expenses arising from intra-group transactions, are are recognised in the Statement of Comprehensive Income eliminated in preparing the consolidated Financial Statements. and amortisation of transaction costs that are capitalised and amortised over the life of the borrowings. (g) Revenue (iii) Pre-opening expenses Revenue is recognised in the Statement of Comprehensive Income to the extent that it is probable that the economic Pre-opening expenses in connection with new stores are charged benefits will flow to the Consolidated Entity and the revenue can to the Statement of Comprehensive Income in the period in be reliably measured. The following specific recognition criteria which they are incurred. must also be met before revenue is recognised: (i) Leases (i) Sale of goods The determination of whether an arrangement is or contains a Revenue from the sale of goods is recognised when the significant lease is based on the substance of the arrangement and requires risks and rewards of ownership have been transferred to the an assessment of whether the fulfilment of the arrangement buyer. Risks and rewards are considered as being passed to the is dependent on the use of a specific asset or assets and the buyer at the earlier of delivery of the goods or the transfer of arrangement conveys the right to use the asset. legal title to the customer. Revenue from the sale of goods is Leases of property, plant and equipment where the Consolidated recognised net of returns. Entity, as lessee, has substantially all the risks and rewards of Revenue from customer gift cards is recognised when the ownership are classified as finance leases. Finance leases are card’s balance is partially or fully redeemed by the customer capitalised at the lease’s inception at the fair value of the leased through the purchase of goods using the card. When a revenue property or, if lower, the present value of the minimum lease transaction involves the issue of a promotional gift card that payments. The corresponding rental obligations are included in may be subsequently redeemed, the future expected cost other liabilities. of settling the obligation is provided for at the time of the revenue transaction. (j) Cash and cash equivalents Cash and cash equivalents in the Statement of Financial Position (ii) Commission earned comprise cash at bank and in hand, and short term deposits with Revenue from commissions earned is recognised when For personal use only use personal For an original maturity of three months or less. it is probable that the economic benefits will flow to the Consolidated Entity. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

David Jones Annual Report 2011 David Jones Annual Report 2011 70 71 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Amounts accumulated in equity are recycled in the profit and continued loss in the periods when the hedged item will affect profit or loss (for instance when the forecast transaction that is hedged (k) Receivables takes place). However, when the forecast transaction that is Trade and other receivables are stated at amounts to be hedged results in the recognition of a non-financial asset (for received in the future and are disclosed net of any provision for example, inventory) or a non-financial liability, the gains and doubtful debts. losses previously deferred in equity are transferred from equity Collectability of trade and other receivables is reviewed on an and included in the measurement of the initial cost or carrying ongoing basis. Debts that are known to be uncollectible are amount of the asset or liability. written off. An allowance for doubtful debt is made when there When a hedging instrument expires or is sold or terminated, or is objective evidence that the Consolidated Entity will not be able when a hedge no longer meets the criteria for hedge accounting, to collect the debts. Bad debts are written off when identified in any cumulative gain or loss existing in equity at that time remains the Statement of Comprehensive Income. in equity and is recognised when the forecast transaction is ultimately recognised in the profit and loss, within net financing (l) Derivative financial instruments expenses. When a forecast transaction is no longer expected to The Consolidated Entity holds derivative financial instruments to occur, the cumulative gain or loss that was reported in equity is hedge its foreign currency and interest rate risk exposures. immediately transferred to the profit and loss. Derivatives are initially recognised at fair value on the date (iii) Derivatives that do not qualify for hedge accounting a derivative contract is entered into and are subsequently Certain derivative instruments do not qualify for hedge remeasured at fair value. The method of recognising the resulting accounting. Changes in the fair value of any derivative instrument gain or loss depends on whether the derivative is designated that does not qualify for hedge accounting are recognised as a hedging instrument, and if so, the nature of the item being immediately in the Statement of Comprehensive Income. hedged. The Consolidated Entity designates certain derivatives as either hedges of the fair value of recognised assets or liabilities (m) Other financial assets of a firm commitment (fair value hedges); or hedges of highly The Consolidated Entity classifies its investments in the following probable forecast transactions (cash flow hedges). categories: financial assets at fair value through the Statement of The Consolidated Entity documents at the inception of the Comprehensive Income; loans and receivables. The classification transaction the relationship between hedging instruments depends on the purpose for which the investments were and hedged items, as well as its risk management objective acquired. The classification of investments is determined at the and strategy for undertaking various hedge transactions. The time of initial recognition. Consolidated Entity also documents its assessment, both (i) Financial assets at fair value through the Statement of at hedge inception and on an ongoing basis, of whether the Comprehensive Income derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair This category has two sub-categories: financial assets held for values or cash flows of hedged items. trading; and those designated at fair value through the Statement of Comprehensive Income on initial recognition. A financial asset (i) Fair value hedge is classified in this category if acquired principally for the purpose Changes in the fair value of derivatives that are designated and of selling in the short term or there exists the possibility it will qualify as fair value hedges are recorded in the Statement of be sold in the short term and the asset is subject to frequent Comprehensive Income within net financing expenses, together changes in fair value. with any changes in the fair value of the hedged asset or liability (ii) Loans and receivables that are attributable to the hedged risk. Loans and receivables are non-derivative financial assets with (ii) Cash flow hedge fixed or determinable payments that are not quoted in an active The effective portion of the changes in the fair value of market. They are included in current assets, except for those derivatives that are designated and qualify as cash flow hedges with maturities greater than 12 months after the balance date, are recognised in equity as part of the hedging reserve. The which are classified as non-current assets. Loans and receivables

gain or loss relating to the ineffective portion is recognised are included in receivables in the Statement of Financial Position. For personal use only use personal For immediately in the profit and loss, within net financing expenses.

David Jones Annual Report 2011 David Jones Annual Report 2011 70 71 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Consolidated Entity first assesses whether objective continued evidence of impairment exists for financial assets that are individually significant, and individually or collectively for financial (n) Foreign currency transactions assets that are not individually significant. If it is determined that Transactions in foreign currencies are translated at the foreign no objective evidence of impairment exists for an individually exchange rate ruling at the date of the transaction. Monetary assessed financial asset, whether significant or not, the asset assets and liabilities denominated in foreign currencies are is included in a group of financial assets with similar credit risk translated to Australian dollars at the foreign exchange rate characteristics and that group of financial assets is collectively ruling at the balance date. assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues (o) Fair value estimation to be recognised are not included in a collective assessment The fair value of financial assets and financial liabilities must be of impairment. estimated for recognition and measurement. If, in a subsequent period, the amount of the impairment The fair value of financial instruments traded in active markets loss decreases and the decrease can be related objectively (such as publicly traded derivatives) is based on quoted market to an event occurring after the impairment was recognised, prices at each balance date. The quoted market price used for the previously recognised impairment loss is reversed. Any financial assets held by the Consolidated Entity is the current bid subsequent reversal of an impairment loss is recognised in the price. The appropriate quoted market price for financial liabilities Statement of Comprehensive Income, to the extent that the is the current ask price. carrying value of the asset does not exceed its amortised cost The fair value of financial instruments that are not traded in an at the reversal date. active market (for example, over-the-counter derivatives) is (ii) Other assets determined using valuation techniques. The Consolidated Entity At each reporting date, the Consolidated Entity assesses whether uses a variety of methods and makes assumptions that are based there is any indication that an asset may be impaired. Where an on market conditions existing at each balance date. Quoted indicator of impairment exists, the Consolidated Entity makes a market prices or dealer quotes for similar instruments are used formal estimate of recoverable amount. for long term debt instruments held. Other techniques, such as estimated discounted cash flows, are used to determine fair value Recoverable amount is the higher of fair value less costs to sell, for the remaining financial instruments. The fair value of interest and value in use. It is determined for an individual asset, unless rate swaps is calculated as the present value of the estimated the asset’s value in use cannot be estimated to be close to its fair future cash flows. The fair value of forward exchange contracts value less costs to sell and it does not generate cash inflows that is determined using forward exchange market rates at each are largely independent of those from other assets or group of balance date. assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs. The nominal value less estimated impairment adjustments of trade receivables and payables are assumed to approximate In assessing value in use, the estimated future cash flows are their fair values. The fair value of financial liabilities is estimated discounted to their present value using a pre-tax discount rate by discounting the future contractual cash flows at the current that reflects current market assessments of the time value of market interest rate that is available to the Consolidated Entity money and the risks specific to the asset. for similar financial instruments. An impairment loss is recognised whenever the carrying (p) Impairment amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in (i) Financial assets carried at amortised cost the Statement of Comprehensive Income, unless an asset If there is objective evidence that an impairment loss on loans has previously been re-valued, in which case the impairment and receivables carried at amortised cost has been incurred, the loss is recognised as a reversal to the extent of that previous amount of the loss is measured as the difference between the revaluation with any excess recognised through the Statement asset’s carrying amount and the present value of estimated future of Comprehensive Income. cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s effective interest Impairment losses recognised in respect of cash-generating units For personal use only use personal For rate determined at the time of initial recognition. The carrying are allocated first to reduce the carrying amount of any goodwill amount of the asset is reduced either directly or through use of allocated to cash-generating units and then, to reduce the an allowance account. The amount of the loss is recognised in the carrying amount of the other assets in the unit (group of units) Statement of Comprehensive Income. on a pro rata basis.

David Jones Annual Report 2011 David Jones Annual Report 2011 72 73 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (iii) Depreciation continued Depreciation is charged to the Statement of Comprehensive (q) Inventories Income on a straight-line basis over the estimated useful lives of buildings, plant and equipment. The estimated useful lives in the Finished goods on hand or in transit are stated at the lower of current and comparative year are as follows: cost and net realisable value with cost primarily being determined by using the retail inventory method. This method utilises the Leasehold improvements 10–25 years current selling prices of inventories and reduces prices to cost by Plant and equipment 5–25 years the application of average department mark up ratios. Computer equipment 3–5 years Fixtures and fittings 5–13 years Net realisable value is the estimated selling price in the ordinary Buildings 75 years course of business, less estimated costs necessary to make the sale. The assets’ residual values and useful life are reviewed, and adjusted if appropriate, at each balance date. Supplier rebates, discounts and subsidies (to the extent they exceed the incremental cost for a specific promotion) are (iv) Impairment recognised as a reduction in the cost of inventory and are The carrying values of plant and equipment are reviewed for recorded as a reduction in cost of sales when the inventory is impairment when events or changes in circumstances indicate the sold. Inventories do not include finished goods on hand in store carrying value may not be recoverable. departments that are subject to Retail Brand Management agreements as these goods are purchased from the supplier For an asset that does not generate largely independent cash immediately prior to a sales transaction occurring. inflows, the recoverable amount is determined for the cash- generating unit to which the asset belongs. (r) Property, plant and equipment If any such indication exists and where the carrying values exceed (i) Owned assets the estimated recoverable amount, the assets or cash-generating Items of property, plant and equipment are stated at cost less units are written down to their recoverable amount. accumulated depreciation and impairment losses. The cost of The recoverable amount of plant and equipment is the greater self-constructed assets includes the cost of materials, direct of fair value less costs to sell, and value in use. In assessing value labour and an appropriate proportion of production overheads. in use, the estimated future cash flows are discounted to their The cost of assets includes the costs of dismantling and removing present value using a pre-tax discount rate that reflects current the items (based on best estimates at the time of acquisition) market assessments of the time value of money and the risks and restoring the site on which they are located. Changes in the specific to the asset. measurement of existing liabilities recognised for these costs resulting from changes in the timing or outflow of resources (s) Intangibles required to settle the obligation, or from changes in the discount (i) Goodwill rate, are also capitalised. Goodwill represents the excess of the acquisition cost over the Where parts of an item of property, plant and equipment have fair value of the Consolidated Entity’s share of the net identifiable different useful lives, they are accounted for as separate items of assets of the acquired subsidiary or business combination (refer plant and equipment. note 1(c)) at the date of acquisition. Goodwill is included within intangible assets and is not amortised. Instead, it is tested for (ii) Subsequent costs impairment annually, or more frequently if events or changes in The Consolidated Entity recognises in the carrying amount of an circumstances indicate that it might be impaired. item of plant and equipment the cost of replacing part of such an Following initial recognition, goodwill is measured at cost less any item when that cost is incurred, if it is probable that the future accumulated impairment losses. For goodwill balances recognised economic benefits embodied within the item will flow to the prior to 1 August 2004, the carrying value is net of goodwill Consolidated Entity and the cost of the item can be measured amortisation up to 31 July 2004. reliably. All other repairs and maintenance costs are recognised in the Statement of Comprehensive Income as an expense (ii) Software as incurred. For personal use only use personal For Software is amortised on a straight-line basis over the estimated useful life of the asset. It is disclosed within intangible assets and is assessed annually for any indicators of impairment. The useful life of software assets for the current and comparative year was five years.

David Jones Annual Report 2011 David Jones Annual Report 2011 72 73 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (iii) Superannuation contributions continued Contributions are only made to defined contribution funds, (t) Trade and other payables and are recognised as an expense in the Statement of Comprehensive Income as they become payable. Trade and other payables are recognised when the Consolidated Entity becomes obliged to make future payments resulting from (iv) Share-based payments the purchase of goods and services. The amounts, which are Share-based compensation is provided to eligible employees as stated at cost, are unsecured, non interest bearing and usually part of their remuneration. The fair value of rights granted to settled within 30–90 days of recognition. employees is recognised as an employee benefits expense with a corresponding increase to the share based payments reserve. (u) Interest bearing liabilities Interest bearing liabilities are initially recognised at fair value, net The fair value is measured at grant date and recognised as an of transaction costs incurred. After initial recognition the liabilities expense over the period during which the employees become are carried at amortised cost using the effective interest method. unconditionally entitled to the underlying shares. Interest bearing liabilities are classified as current liabilities The fair value of the rights granted is valued by an external valuer unless the Consolidated Entity has an unconditional right to taking into account the terms and conditions upon which the defer settlement of the liability for at least 12 months after the rights were granted. reporting date. The amount recognised as an expense is adjusted to reflect the actual number of share rights that vest (except in cases where (v) Provisions forfeiture is due to the Total Shareholder Return (TSR) being A provision is recognised in the Statement of Financial Position below the vesting threshold). when the Consolidated Entity has a present legal or constructive obligation as a result of a past event, and it is probable that Where a tax deduction arises for the settlement of share-based an outflow of economic benefits will be required to settle payments, the amount recognised as a benefit to income tax the obligation. Provisions are determined by discounting the expense is limited to the tax effect of the related share-based expected future cash flows at a pre-tax rate that reflects payments expense. Any remaining amount is recognised directly current market assessments of the time value of money and the in equity in the share-based payments reserve. A deferred tax risks specific to the liability. A description of the nature of each balance is recognised for any deductions earned for which the provision is disclosed in note 18. related share-based payment has not been recognised and for the estimate of any probable deductions that will occur in (w) Employee benefits the future. (i) Wages, salaries, annual leave, sick leave and non-monetary (v) Bonus plans benefits The Consolidated Entity recognises a provision and an expense Liabilities for wages and salaries (including non-monetary for bonuses payable under the Short Term Incentive (STI) benefits) and annual leave in respect of employees’ services up Scheme based on a formula that takes into consideration the to the reporting date are measured at the undiscounted amounts profit attributable to the Company’s shareholders after certain expected to be paid when the liability is settled including adjustments. The Consolidated Entity recognises a provision on-costs such as payroll tax, superannuation and workers when a contractual obligation exists or where there is a past compensation insurance. practice that has created a constructive obligation. Non-accumulating benefits such as sick leave are not provided for (x) Contributed Equity and are expensed as the benefits are taken by employees. Ordinary shares are classified as contributed equity. (ii) Long service leave Incremental costs directly attributable to the issue of new shares The liability for long service leave is recognised in the provision or options are shown in contributed equity as a deduction, net of for employee benefits and measured as the present value of tax, from the proceeds. expected future payments to be made for services provided by employees up to the reporting date. Consideration is given to (y) Dividends expected future wage and salary levels, experience of employee For personal use only use personal For Provision is made for the amount of any dividend declared in departures and periods of service. Expected future payments respect of ordinary shares on or before the end of the period but are discounted using the rates attached to national government not distributed at the balance date. bonds at the balance date that have maturity dates approximating the expected future cash outflows.

David Jones Annual Report 2011 David Jones Annual Report 2011 74 75 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company and its wholly owned Australian resident entities continued have formed a tax-consolidated group with effect from 28 July 2002 and have therefore been taxed as a single entity from (z) Earnings per share that date. The head entity within the tax-consolidated group is (i) Basic earnings per share David Jones Limited. Basic earnings per share is calculated by dividing the profit Current tax expense, deferred tax liabilities and deferred tax attributable to equity holders of the Company by the weighted assets arising from temporary differences of the members of the average number of ordinary shares outstanding during the tax-consolidated group are recognised in the separate financial financial year. statements of the members of the tax-consolidated group using (ii) Diluted earnings per share the ‘group allocation’ approach. Diluted earnings per share adjusts the figures used in the Details of the Consolidated Entity’s tax funding agreement and determination of basic earnings per share to take into account tax sharing agreement are disclosed in note 5. the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and (ab) Goods and Services Tax (GST) the weighted average number of shares assumed to have been Revenue, expenses and assets are recognised net of the issued for no consideration in relation to dilutive potential amount of GST except where the GST incurred on a purchase ordinary shares. of goods and services is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part (aa) Income tax of the cost of acquisition of the asset or as part of the expense Income tax on the profit or loss for the year comprises current item as applicable. and deferred tax. Income tax is recognised in the Statement of Comprehensive Income except to the extent that it relates to Receivables and payables are stated inclusive of GST. The net items recognised directly in equity, in which case it is recognised amount of GST recoverable from, or payable to, the taxation in equity. authority is included as part of receivables or payables in the Statement of Financial Position. Current tax is the expected tax payable on the taxable income for the year based on the corporate tax rate of 30% and any Cash flows are included in the Cash Flow Statement on a gross adjustment to tax payable in respect of previous years. basis. The GST component of cash flows arising from investing and financing activities, which are recoverable from, or payable Deferred tax is provided for using the balance sheet method, to, the taxation authority are classified as operating cash flows. providing for temporary differences between the carrying amounts of assets and liabilities for Financial Statements purposes Commitments and contingencies are disclosed net of the amount and the amounts used for taxation purposes, with the exception of GST recoverable from, or payable to, the taxation authority. of goodwill. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance date. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses, except where the deferred income tax asset relating to the deductible difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and at the time of the transaction, affects

neither the accounting profit nor taxable profit or loss. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 74 75 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

2011 2010 $000 $000

2. OTHER INCOME Commissions received 51,822 47,680 Sundry income 3,584 3,573 Interest income 401 268 Financial services fees & interest – David Jones store card 120 121 Total Other Income 55,927 51,642

3. PROFIT BEFORE INCOME TAX Depreciation 43,344 40,536 Amortisation 2,532 3,276 Total depreciation and amortisation 45,876 43,812

Loss on disposal of plant and equipment 748 178 Net financing expenses: Interest and finance charges (gross) 7,559 6,462 Interest expense on hedging instrument – 909 Interest and finance charges 7,559 7,371 Net unrealised foreign exchange (gain)/loss 230 (308) Total net financing expenses 7,789 7,063

Share-based payments expense 5,846 9,487 Defined contribution superannuation expense 24,184 25,045 Amount set aside to provide for Directors’ retirement allowance 78 51 Rental expense on operating leases: Other persons – minimum lease payments 78,504 75,444 Contingent rentals 5,145 8,967

Total rental expense 83,649 8 4,411 For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 76 77 4. SEGMENT REPORTING Operating segments Operating segments are defined with reference to information regularly reviewed by the Consolidated Entity’s Chief Executive Officer (chief operating decision maker). The Consolidated Entity operates in Australia and was organised into the following operating segments by product and service type for the financial year: – Department Stores comprising David Jones department stores, rack stores, online and corporate office; and – Financial Services comprising the alliance between the Consolidated Entity and American Express.

Unallocated items Interest revenue and some interest expenses are not allocated to operating segments as they are not considered part of the core operations of a specific segment.

Segment accounting policies Segment accounting policies are the same as the Consolidated Entity’s policies described in note 1, except for interest revenue and some interest expenses. During the financial year, there were no changes in segment accounting policies that had a material effect on segment information. Department Financial For the 52 weeks ended 30 July 2011 Stores Services Unallocated Consolidated Operating segments: $000 $000 $000 $000 Revenue from external customers 1,961,744 – – 1,961,744 Other income: Commissions earned – 52,182 – 52,182 Other revenues from external customers 3,344 – – 3,344 Total segment revenue and other income 1,965,088 52,182 – 2,017,270 Gross profit 767,270 – – 767,270 Depreciation and amortisation (45,872) (4) – (45,876) Share based payments (5,846) – – (5,846) All other expenses (520,134) (4,471) – (524,605) Total expenses (571,852) (4,475) – (576,327) Segment earnings before interest and tax 198,762 47,707 – 246,469 Interest revenue – – 401 401 Interest expense (6,746) – (802) (7,548) Net interest expense (6,746) – (401) (7,147)

Segment profit before tax 192,016 47,707 (401) 239,322 For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 76 77 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

4. SEGMENT REPORTING CONTINUED Department Financial For the 53 weeks ended 31 July 2010 Stores Services Unallocated Consolidated Operating segments: $000 $000 $000 $000 Revenue from external customers 2,053,087 – – 2,053,087 Other income: Commissions earned – 48,069 – 48,069 Other revenues from external customers 3,305 – – 3,305 Total segment revenue and other income 2,056,392 48,069 – 2,104,461 Gross profit 815,729 – – 815,729 Depreciation and amortisation (43,797) (15) – (43,812) Share based payments (9,487) – – (9,487) All other expenses (560,952) (3,675) – (564,627) Total expenses (614,236) (3,690) – (617,926) Segment earnings before interest and tax 204,798 44,379 – 249,177 Interest revenue – – 268 268 Interest expense (6,593) – (821) (7,414) Net interest expense (6,593) – (553) (7,146) Segment profit before tax 198,205 44,379 (553) 242,031

2011 2010 $000 $000

5. INCOME TAX EXPENSE Recognised in the Statement of Comprehensive Income: Current tax expense Current year 61,481 72,898 Over provision in prior years (1,624) (957) 59,857 71,941 Deferred tax expense/(benefit) Origination and reversal of temporary differences 11,326 (676)

Total income tax expense in Statement of Comprehensive Income 71,183 71,265 For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 78 79 2011 2010 $000 $000

5. INCOME TAX EXPENSE CONTINUED Profit before income tax expense 239,322 242,031 Tax at the corporate tax rate of 30% (2010: 30%) 71,797 72,609 Increase in income tax expense due to: − assessable income on disposal of property – 1,127 − deferred tax expense for share based payments 1,871 1,958 − non-deductible legal fees 441 278 − non-deductible share-based payments expense 308 246 − non-deductible entertainment 157 46 − other 1,169 (867) Decrease in income tax expense due to: − deductible contribution to Trust for acquisition of shares for LTI Plan (2,126) (2,364) − deductible building capital works (810) ( 811) 72,807 72,222 Income tax expense over provided in prior years (1,624) (957) Income tax expense 71,183 71,265

Amounts recognised directly in equity Current tax recognised directly in equity – share based payments (3,426) (3,488) Deferred tax recognised directly in equity – share based payments 1,710 1,727 – cash flow hedges 150 (112) Total amounts recognised directly in equity (1,566) (1,873)

Tax consolidation The Company and its wholly owned Australian resident subsidiaries formed a tax-consolidated group for income tax purposes with effect from 28 July 2002 and have therefore been taxed as a single entity from that date. The head entity within the tax-consolidated group is David Jones Limited. This entity is legally liable for the income tax liabilities of the tax-consolidated group. The accounting policies dealing with the accounting treatment of the tax consolidation are set out in note 1.

Nature of tax funding agreement and tax sharing agreement The members of the tax-consolidated group have entered into a tax funding agreement which sets out the funding obligations of members of the tax-consolidated group in respect of tax amounts. The tax funding agreement requires payments to/(from) the head entity equal to the current tax liability/(asset) assumed by the head entity, and for any deferred tax assets arising from tax losses assumed by the head entity, resulting in the head entity recognising an inter-entity payable/(receivable) equal to the amount of the tax liability/(asset) assumed.

For personal use only use personal For The members of the tax-consolidated group have also entered into a tax sharing agreement. The tax sharing agreement provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the Financial Statements in respect of this agreement, as payment of any amounts under the tax sharing agreement is considered remote.

David Jones Annual Report 2011 David Jones Annual Report 2011 78 79 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

Total Cents Amount Per Share $000 Date of Payment

6. DIVIDENDS Dividends recognised by the Company: 2011 2010 Final ordinary 18.0 91,344 8 November 2010 2011 Interim ordinary 13.0 66,372 9 May 2011 Total dividends recognised 157,716

2010 2009 Final ordinary 17.0 85,055 2 November 2009 2010 Interim ordinary 12.0 60,383 3 May 2010 Total dividends recognised 145,438

All dividends paid in the current and prior financial year were fully franked at the tax rate of 30%.

Subsequent event Since the end of the financial year, the Directors have declared the following dividend on ordinary shares, fully franked at the tax rate of 30%: 2011 Final ordinary 15.0 78,113 7 November 2011

The financial effect of the final ordinary dividend for 2011 has not been recognised in the Financial Statements for the year ended 30 July 2011 and will be recognised in subsequent financial statements.

Dividend franking account Franking credits available to shareholders of the Company for subsequent financial years, based on a tax rate of 30% (2010: 30%) are $76.498 million (2010: $88.864 million). The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: – franking credits that will arise from the payment of the current tax liability; – franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and – franking credits that may be prevented from being distributed in subsequent financial years. The impact on the franking account of the dividend recommended by the Directors since the end of the financial year, but not recognised as a liability at year end, will be a reduction in the franking account of $33.477 million (2010: $39.416 million). For income tax purposes, the Company and its wholly owned Australian subsidiaries formed a tax-consolidated group for which one

franking account is maintained. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 80 81 2011 2010 Cents Per Share Cents Per Share

7. EARNINGS PER SHARE Basic earnings per share 33.0 34.0 Diluted earnings per share 32.4 33.0

$000 $000 The following data was used in calculating basic and dilutive earnings per share: Profit after income tax expense 168,139 170,766

NUMBER NUMBER Weighted average number of ordinary shares used in the calculation of basic earnings per share 509,566,775 502,348,807 Effect of dilution – LTI Plan 9,128,368 14,698,518

Weighted average number of ordinary shares used in the calculation of diluted earnings per share 518,695,143 517,047,325 Weighted average number of converted, lapsed or cancelled potential ordinary shares included in diluted earnings per share 1,800,247 3,947,088

There have been no other material transactions involving ordinary shares or potential ordinary shares since balance date and before the completion of these Financial Statements. At 30 July 2011, 3,852,872 LTI and Retention Plan rights (2010: 4,918,870) were excluded from the weighted average number of ordinary shares used in the calculation of diluted earnings per share as their effect would have been non-dilutive. 2011 2010 $000 $000

8. CASH AND CASH EQUIVALENTS Cash at bank and on hand 11,703 11, 594 Short term deposits – 6,000 11,703 17,594

The Consolidated Entity’s exposure to interest rate risk, including a sensitivity analysis for financial assets and liabilities, is disclosed in note 31. Reconciliation of profit after income tax to the net cash flows from operations Profit after income tax 168,139 170,766 Adjusted for other non-cash items and transfers: – Depreciation and amortisation expenses 45,876 43,812 – Net loss on disposal of assets 748 178 – Share-based payments expense 5,846 9,487 Changes in assets and liabilities: – Receivables 3,115 (441) – Inventories (6,504) (37,503) – Other assets (1,323) 4,392 For personal use only use personal For – Payables (28,100) 427 – Taxation 11,335 23,678 – Provisions (14,510) (11,485) – Other liabilities (2,184) 612 Net cash from operating activities 182,438 203,923

David Jones Annual Report 2011 David Jones Annual Report 2011 80 81 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

2011 2010 $000 $000

9. RECEIVABLES CURRENT Amounts receivable from suppliers 13,784 11,987 Less: Allowance for doubtful debts (3,321) (3,354) Net amounts receivable from suppliers 10,463 8,633 Other receivables 9,174 14,117 19,637 22,750

Notes: (i) Refunds receivable from suppliers and other debtors are non-interest bearing and are generally on 30 to 90 day terms. (ii) Details of the effective interest rate and credit risk of current receivables are disclosed in note 31. 2011 2010 $000 $000 Movements in the allowance for doubtful debts from suppliers Balance at the beginning of the year (3,354) (4,420) Reversal/(Charge) for the year 2 932 Written off 31 134 Balance at the end of the year (3,321) (3,354)

Aged Analysis of Receivables Neither past due nor impaired 2,610 7,690 Less than 30 days overdue and not impaired 5,738 256 More than 30 days but less than 90 days overdue and not impaired 1,047 534 More than 90 days overdue and not impaired 1,068 153 Total amounts due from suppliers, net of provision for doubtful debts 10,463 8,633

Based on the credit history of other receivables, it is expected that these amounts will be received when due. The credit quality of all financial assets that are neither past due nor impaired is consistently monitored with reference to historical default rates, payment history, account aging, borrower specific events, consumer credit bureau and other publicly available information so as to identify any potential adverse changes in credit quality. The credit quality of receivables at balance date is considered satisfactory.

The Consolidated Entity’s accounting policy for impairment is disclosed in note 1(p). For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 82 83 2011 2010 $000 $000

10. INVENTORIES Retail inventories 288,850 282,346 288,850 282,346

11. FINANCIAL ASSETS CURRENT Forward exchange contracts – 14 – 14

NON-CURRENT Shares in other corporations 12 12 12 12

Forward exchange and interest rate swap contracts are designated as cash flow hedges. Information in relation to the Consolidated Entity’s exposure to forward exchange and interest rate risks are disclosed in note 31.

12. OTHER ASSETS CURRENT Prepayments 6,911 5,380 6,911 5,380

NON-CURRENT Prepayments 189 397

189 397 For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 82 83 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

13. PROPERTY, PLANT AND EQUIPMENT The movements in the Consolidated Entity’s property, plant and equipment balances are as follows: Land and Buildings and Leasehold Plant and Computer Fixtures Work in Integral Plant Improvements Equipment Equipment and Fittings Progress Total Year ended 30 July 2011 $000 $000 $000 $000 $000 $000 $000 At 31 July 2010, net of accumulated depreciation 381,499 91,656 19,159 6,156 125,998 137,097 761,565 Additions 85,669 11,076 20,752 3,654 64,404 (104,614) 80,941 Disposals and write-downs – (4) (65) (2) (675) – (746) Transfer and Reclassification – (27,735) 24,020 – 3,715 – – Depreciation charge for the year (4,629) (5,856) (5,711) (1,301) (27,306) 1,459 (43,344) At 30 July 2011, net of accumulated depreciation 462,539 69,137 58,155 8,507 166,136 33,942 798,416 At 31 July 2010 Cost 390,073 199,763 66,540 38,339 306,221 138,556 1,139,492 Accumulated depreciation (8,574) (108,107) (47,381) (32,183) (180,223) (1,459) (377,927) Net carrying amount 381,499 91,656 19,159 6,156 125,998 137,097 761,565 At 30 July 2011 Cost 475,742 158,655 120,811 39,168 375,834 33,942 1,204,152 Accumulated depreciation (13,203) (89,518) (62,656) (30,661) (209,698) – (405,736) Net carrying amount 462,539 69,137 58,155 8,507 166,136 33,942 798,416

Year ended 31 July 2010 At 25 July 2009, net of accumulated depreciation 383,740 95,835 21,366 6,211 143,222 73,706 724,080 Additions – 3,419 1,811 1,226 7,451 64,850 78,757 Disposals and write-downs – (48) (12) (7) (669) – (736) Depreciation charge for the year (2,241) (7,550) (4,006) (1,274) (24,006) (1,459) (40,536) At 31 July 2010, net of accumulated depreciation 381,499 91,656 19,159 6,156 125,998 137,097 761,565 At 25 July 2009 Cost 390,073 196,425 65,247 38,319 304,228 73,706 1,067,998 Accumulated depreciation (6,333) (100,590) (43,881) (32,108) (161,006) – (343,918) Net carrying amount 383,740 95,835 21,366 6,211 143,222 73,706 724,080 At 31 July 2010 Cost 390,073 199,763 66,540 38,339 306,221 138,556 1,139,492 For personal use only use personal For Accumulated depreciation (8,574) (108,107) (47,381) (32,183) (180,223) (1,459) (377,927) Net carrying amount 381,499 91,656 19,159 6,156 125,998 137,097 761,565

David Jones Annual Report 2011 David Jones Annual Report 2011 84 85 14. INTANGIBLE ASSETS The movements in the Consolidated Entity’s intangible asset balances are as follows: Software Goodwill Total Year ended 30 July 2011 $000 $000 $000 At 31 July 2010, net of accumulated amortisation 6,075 30,305 36,380 Additions 576 – 576 Disposals (2) – (2) Amortisation charge for the year (2,532) – (2,532) At 30 July 2011, net of accumulated amortisation 4,117 30,305 34,422 At 31 July 2010 Cost 35,773 30,305 66,078 Accumulated amortisation (29,698) – (29,698) Net carrying amount 6,075 30,305 36,380 At 30 July 2011 Cost 32,925 30,305 63,230 Accumulated amortisation (28,808) – (28,808) Net carrying amount 4,117 30,305 34,422

Year ended 31 July 2010 At 25 July 2009, net of accumulated amortisation 7,887 30,305 38,192 Additions 1,464 – 1,464 Amortisation charge for the year (3,276) – (3,276) At 31 July 2010, net of accumulated amortisation 6,075 30,305 36,380 At 25 July 2009 Cost 34,537 30,305 64,842 Accumulated amortisation (26,650) – (26,650) Net carrying amount 7,887 30,305 38,192 At 31 July 2010 Cost 35,773 30,305 66,078 Accumulated amortisation (29,698) – (29,698) Net carrying amount 6,075 30,305 36,380

Impairment test for goodwill and other assets The goodwill balance relates to the acquisition of a group of department stores in Western Australia ($10.305 million) and a department store in New South Wales ($20.000 million). The recoverable amount of these Cash Generating Units (CGUs) has been determined on the basis of a value in use calculation. The calculation uses a cash flow projection over the remaining term of

each store lease discounted at a pre-tax rate of 14.8% (2010: 15.27%). The cash flows are based on financial projections for each CGU For personal use only use personal For using a long term sales growth rate of between 0.00% and 1.00% for the remaining lease period, and reflect both past experience and market expectations. The discount rate is derived from the Consolidated Entity’s weighted average cost of capital. Sensitivity analyses were performed by management, taking the financial projections noted and reducing sales by up to 25.00% with the discount rate being increased to 17.8%. The results of the sensitivity analyses indicate that under these conditions it is reasonable to expect that no impairment losses would arise.

David Jones Annual Report 2011 David Jones Annual Report 2011 84 85 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

2011 2010 $000 $000

15. DEFERRED TAX ASSETS AND LIABILITIES Deferred tax assets are attributable to the following items: Inventory 10,838 10,885 Plant and equipment 20,601 19,929 Accrued expenses 6,073 8,410 Provisions for: – Directors retirement allowance 400 376 – Doubtful debts 996 1,006 – Employee benefits 8,613 12,505 – Sales returns 507 960 Gift card non-redemption provision (851) – Straight-lining of lease rentals 8,288 8,971 Hedge accounting 423 3,023 Share based payments (1,556) 2,027 Other amounts 78 391 54,410 68,483

Reconciliation of movement of deferred tax assets: Opening balance 68,483 70,680 Charges recognised in Statement of Comprehensive Income (12,213) (582) Amounts recognised against equity (1,860) (1,615) 54,410 68,483

16. PAYABLES Trade payables 97,794 122,518 Other payables and accruals 118,635 122,011

216,429 244,529 For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 86 87 2011 2010 $000 $000

17. INTEREST BEARING LIABILITIES CURRENT Bank overdraft 2,943 2,945 2,943 2,945

NON-CURRENT Unsecured bank loan 129,000 101,000 129,000 101,000

Information in relation to the Consolidated Entity’s exposure to interest rate risk is disclosed in note 31.

Unsecured Bank Loan The unsecured syndicated bank loan in the form of a revolving cash advance facility was established in July 2007. The loan facility has a single, core term tranche of $350.000 million repayable on 28 September 2012. Further information in relation to this finance facility is disclosed in note 31. 2011 2010 Note $000 $000 Financing facilities Access to the following lines of credit was available at balance date: Total facilities (i) Unsecured bank loan 350,000 350,000 Overdraft and trade finance facility (ii) 29,600 29,600 Bank guarantee 1,024 1,360 380,624 380,960 Used at balance date Unsecured bank loan 129,000 101,000 Overdraft and trade finance facility 2,943 2,945 Bank guarantee 1,024 1,360 132,967 105,305 Unused at balance date Unsecured bank loan 221,000 249,000 Overdraft and trade finance facility 26,657 26,655 247,657 275,655

Notes: (i) All facilities are denominated in Australian dollars, unsecured and subject to borrowing covenants, which have been met.

(ii) The overdraft and trade finance facilities are subject to annual review in February each year. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 86 87 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

2011 2010 $000 $000

18. PROVISIONS CURRENT Employee entitlements 23,690 36,510 Sales returns 1,692 3,199 Dismantling and restoration 1,036 621 26,418 40,330

NON-CURRENT Employee entitlements 5,160 5,302 Directors’ retirement allowance 1,332 1,254 Dismantling and restoration – 534 6,492 7,090

Movement Movement in the carrying amount of each class of provision, excluding employee benefits and Directors’ retirement allowance, are set out below. Dismantling Sales and Returns Restoration Total $000 $000 $000 Balance at the beginning of the year 3,199 1,155 4,354 Provisions made during the year 922 (10) 912 Provisions used during the year (2,429) (109) (2,538) Balance at the end of the year 1,692 1,036 2,728

Current 1,692 1,036 2,728 Total 1,692 1,036 2,728

Sales returns A provision is recognised for the estimated cost of sales returns, which have occurred during the year. The provision is estimated with reference to actual sales during the period and the historical level of sales returns processed in accordance with the Consolidated Entity’s returns policy.

Dismantling and restoration A provision is recognised in respect of existing lease contracts for the estimated present value of expenditure required to complete dismantling and site restoration obligations under those contracts at balance date. Future dismantling and restoration costs are reviewed annually. Any changes are reflected in the present value of the dismantling and restoration provision at the end of the reporting period. The amount of the provision for future dismantling costs is capitalised and is amortised in accordance with the policy set out in note

1(r). The unwinding of the effect of discounting of the provision is recognised as a finance expense. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 88 89 2011 2010 $000 $000

19. FINANCIAL LIABILITIES CURRENT Forward exchange contracts 921 1,559 Interest rate swap contracts 488 364 1,409 1,923

Forward exchange and interest rate swap contracts are designated as cash flow hedges. Information in relation to the Consolidated Entity’s exposure to forward exchange and interest rate risks are disclosed in note 31.

20. OTHER LIABILITIES CURRENT Rent straight line adjustment of lease accrual 280 616 280 616

NON-CURRENT Rent straight line adjustment of lease accrual 27,445 29,293 27,445 29,293

21. CONTRIBUTED EQUITY Ordinary shares, fully paid 525,105 502,199 525,105 502,199

Movements in ordinary share capital Balance at the beginning of the year 502,199 479,117 Dividend Reinvestment Plan 27,512 27,612 On-market purchase of shares by Trust (4,743) (4,614) Employee share purchase plan 137 84 Balance at the end of the year 525,105 502,199

DAVID JONES LIMITED Number of shares 2011 2010 Movements in the number of ordinary shares: Balance at the beginning of the year 510,945,759 500,656,676 Dividend Reinvestment Plan 5,805,636 5,289,083 Shares issued to and held by Trust 4,000,000 5,000,000 Balance at the end of the year 520,751,395 510,945,759 Less: ordinary shares held by Trust (8,478,674) (6,330,415)

Balance for the Consolidated entity 512,272,721 504,615,344 For personal use only use personal For Terms and conditions of ordinary shares The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. In the event of the winding up of the Company, ordinary shareholders rank after all other shareholders and creditors, and are fully entitled to any proceeds of liquidation.

David Jones Annual Report 2011 David Jones Annual Report 2011 88 89 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

2011 2010 $000 $000

22. RESERVES Share-based payments reserve 75,633 68,071 Cash flow hedge reserve (986) (1,337) 74,647 66,734

Movements: Share based payments reserve Balance at the beginning of the year 68,071 56,823 Share based payments expense for the year 5,846 9,487 Income tax recognised directly in equity 1,716 1,761 Balance at the end of the year 75,633 68,071

Cash flow hedge reserve Balance at the beginning of the year (1,337) (1,075) Movement during the year in interest rate swaps (87) 997 Movement during the year in foreign exchange contracts 438 (1,259) Balance at the end of the year (986) (1,337)

Share based payments reserve The share based payments reserve is used to recognise the fair value of LTI and Retention Plan rights issued and the income tax effect of amounts recognised directly in equity.

Cash flow hedge reserve The cash flow hedge reserve comprises the effective portion of the cumulative net change in fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred. 2011 2010 $000 $000

23. RETAINED EARNINGS Balance at the beginning of the year 175,305 149,977 Net profit attributable to members of the parent entity 168,139 170,766 Dividends recognised on ordinary shares during the year (157,716) (145,438)

Balance at the end of the year 185,728 175,305 For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 90 91 24. CONTINGENT LIABILITIES The Directors are of the opinion that provisions are not required in respect of the matters disclosed below, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of being reliably measured.

CONSOLIDATED DAVID JONES LIMITED 2011 2010 2011 2010 $000 $000 $000 $000 Indemnities Indemnities to third parties given in the ordinary course of business 1,024 1,360 1,024 1,360

Litigation In the ordinary course of its business, the Consolidated Entity becomes involved in litigation. Provisions and accruals have been made for known obligations and associated costs where the existence of the liability is probable and can be reasonably measured. As the outcomes of these matters remain uncertain, contingent liabilities exist for any amounts that ultimately become payable over and above current provisioning and accrual levels.

Finance facilities David Jones Finance Pty Limited, a controlled entity within the Group, is the borrower of certain finance facilities. The borrowings of David Jones Finance Pty Limited are guaranteed by the Company and certain controlled entities.

Deed of cross guarantee Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the wholly-owned subsidiaries listed below are relieved from the Corporations Act 2001 requirements for preparation, audit, and lodgement of Financial Statements and Directors’ Reports. It is a condition of the Class Order that the Company and each of the participating subsidiaries enter into a Deed of Cross Guarantee. The effect of the Deed, dated 22 March 2005, is that the Company guarantees to each creditor, payment in full of any debt in the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act. If a winding up occurs under other provisions of the Corporations Act, the Company will only be liable in the event that, after six months, any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event that the Company is wound up. The subsidiaries subject to the Deed are: – David Jones Financial Services Limited; – David Jones Finance Pty Limited; – 299–307 Bourke Street Pty Limited; and – David Jones Properties Pty Limited.

The Company and the above subsidiaries represent a Closed Group for the purposes of the Class Order. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 90 91 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

24. CONTINGENT LIABILITIES CONTINUED Deed of cross guarantee continued Set out below is a consolidated income statement and a consolidated statement of financial position comprising the Company and the controlled entities that are party to the Deed, after eliminating all transactions between these parties, at balance date. 2011 2010 $000 $000 Summarised Income Statement Profit before related income tax expense 238,409 241,321 Income tax expense (71,281) (71,356) Profit after income tax expense 167,128 169,965

Summary of movements in consolidated retained earnings Balance at the beginning of the year 165,388 140,861 Dividends recognised during the year (157,716) (145,438) Net profit attributable to parties of the Closed Group 167,128 169,965

Balance at the end of the year 174,800 165,388 For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 92 93 24. CONTINGENT LIABILITIES continued Deed of cross guarantee continued 2011 2010 $000 $000 Statement of Financial Position CURRENT ASSETS Cash and cash equivalents 11,703 17,594 Receivables 19,637 22,750 Inventories 288,850 282,346 Financial assets – 14 Other assets 6,911 5,380 Total current assets 327,101 328,084

NON-CURRENT ASSETS Financial assets 70,255 70,255 Property, plant and equipment 798,416 761,565 Intangible assets 24,117 26,075 Deferred tax assets 54,410 68,483 Other assets 189 397 Total non-current assets 947,387 926,775 Total assets 1,274,488 1,254,859

CURRENT LIABILITIES Payables 287,295 314,384 Interest bearing liabilities 2,943 2,945 Current tax liabilities 18,654 22,957 Provisions 26,418 40,330 Financial liabilities 1,409 1,923 Other liabilities 280 616 Total current liabilities 336,999 383,155

NON-CURRENT LIABILITIES Interest bearing liabilities 129,000 101,000 Provisions 6,492 7,090 Other liabilities 27,445 29,292 Total non-current liabilities 162,937 137,382 Total liabilities 499,936 520,537 Net assets 774,552 734,322

For personal use only use personal For EQUITY Contributed equity 525,105 502,199 Reserves 74,647 66,735 Retained earnings 174,800 165,388 Total equity 774,552 734,322

David Jones Annual Report 2011 David Jones Annual Report 2011 92 93 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

CONSOLIDATED DAVID JONES LIMITED 2011 2010 2011 2010 $000 $000 $000 $000

25. COMMITMENTS FOR EXPENDITURE Capital expenditure commitments Commitments for the acquisition of property, plant and equipment contracted for at the reporting date but not recognised as a liability in the Financial Statements, payable: Within one year 20,291 13,567 20,291 13,567 Later than one year but not later than five years – – – – Later than five years – – – – 20,291 13,567 20,291 13,567

Operating lease commitments Future operating lease rentals payable: Within one year 78,712 75,386 78,712 75,386 Later than one year but not later than five years 304,155 288,524 304,155 288,524 Later than five years 931,511 820,881 931,511 820,881 1,314,378 1,184,791 1,314,378 1,184,791

The Consolidated Entity leases retail premises and warehousing facilities. Generally, the operating lease agreements are for an average term of 23 years and include renewal options. Under most leases, the Consolidated Entity is responsible for property taxes, insurance, maintenance and other expenses related to the leased properties. The operating lease commitments set out above comprise base rental payments plus agreed percentage increases. 2011 2010 $ $

26. AUDITOR’S REMUNERATION During the financial year, the following fees were paid or payable for services provided by Ernst & Young, the auditor of David Jones Limited and it’s Controlled Entities: Audit services: − audit and review of Financial Statements 591,965 645,105 591,965 645,105

There were no non-audit services undertaken by the Consolidated Entity’s external auditor during the financial year. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 94 95 27. KMP DISCLOSURES Key Management Personnel (KMP) are persons having the authority and responsibility for planning, directing and controlling the Company’s activities directly or indirectly, including Directors of David Jones Limited. The information shown is for the Consolidated Entity and the Company. 2011 2010 $ $ Compensation by category for KMP Short-term employee benefits 9,533,145 11, 8 8 0 ,76 5 Post employment benefits 445,371 333,029 Termination benefits – 1,500,000 Other long term benefits 175,367 128,892 Share-based payments 2,995,448 3,165,277

Total compensation 13,149,331 17,007,963 For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 94 95 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

27. KMP DISCLOSURES CONTINUED EQUITY HOLDINGS OF KMP Long Term Incentive (LTI) Plan rights holdings of KMP The following tables show the movements in LTI Plan rights holdings of KMP for the current and prior financial year. For the 52 week period ended 30 July 2011

Granted as Vested and Forfeited/ Fair Value Fair Value Holding at Remuner- Converted Lapsed during Holding at of Right of Right Name LTI Plan 31 July 20101,4 ation1 during the Year the Year2 30 July 20111 (TSR) (NPAT) Number Number Number Number Number $ $ Directors Paul Zahra 09-12 retention offer – Tranche 1 200,000 – (200,000) – – 2.09 2.97 – Tranche 2 200,000 – – – 200,000 1.64 2.74 – Tranche 3 200,000 – – (30,000) 170,000 1.65 2.74 – Tranche 4 400,000 – – – 400,000 1.57 2.51 09-12 additional offer – Tranche 3 – 250,000 – (37,500) 212,500 3.64 3.95 – Tranche 4 – 250,000 – – 250,000 3.45 3.95 $996,000 Stephen 08-10 offer 173,156 – (156,741) (16,415) – 1.69 3.02 Goddard1 09-11 retention offer – Tranche 1 519,677 – – – 519,677 1.63 1.82 – Tranche 2 519,677 – – – 519,677 1.59 1.82 – Tranche 3 692,904 – – (103,936) 588,968 1.61 1.82 09-12 additional offer – Tranche 4 – 250,000 – – 250,000 3.45 3.95 $780,570 Executives Antony Karp 09-12 retention offer – Tranche 1 200,000 – (200,000) – – 2.09 2.97 – Tranche 2 200,000 – – – 200,000 1.64 2.74 – Tranche 3 200,000 – – (30,000) 170,000 1.65 2.74 – Tranche 4 400,000 – – – 400,000 1.57 2.51 $996,000 Karen 09-12 retention offer McLachlan – Tranche 1 160,000 – (160,000) – – 2.09 2.97 – Tranche 2 160,000 – – – 160,000 1.64 2.74 – Tranche 3 160,000 – – (24,000) 136,000 1.65 2.74 – Tranche 4 320,000 – – – 320,000 1.57 2.51 $796,800 Patrick 09-12 retention offer Robinson – Tranche 1 200,000 – (200,000) – – 2.09 2.97 – Tranche 2 200,000 – – – 200,000 1.64 2.74 – Tranche 3 200,000 – – (30,000) 170,000 1.65 2.74 – Tranche 4 400,000 – – – 400,000 1.57 2.51 $996,000 Paula 09-12 retention offer Bauchinger – Tranche 1 68,000 – (68,000) – – 2.09 2.97 – Tranche 2 68,000 – – – 68,000 1.64 2.74 – Tranche 3 68,000 – – (10,200) 57,800 1.65 2.74 – Tranche 4 136,000 – – – 136,000 1.57 2.51

For personal use only use personal For $338,640 Sacha 09-12 retention offer Laing – Tranche 2 45,000 – – – 45,000 1.64 2.74 – Tranche 3 45,000 – – (13,500) 31,500 1.65 2.74 – Tranche 4 90,000 – – – 90,000 1.57 2.51 09-12 additional offer – Tranche 3 – 137,500 – (20,625) 116 , 875 4.03 4.35 – Tranche 4 – 137,500 – – 137,500 3.88 4.35

David Jones Annual Report 2011 David Jones Annual Report 2011 96 97 27. KMP DISCLOSURES CONTINUED EQUITY HOLDINGS OF KMP Long Term Incentive (LTI) Plan rights holdings of KMP For the 52 week period ended 30 July 2011

Granted as Vested and Forfeited/ Fair Value Fair Value Holding at Remuner- Converted Lapsed during Holding at of Right of Right Name LTI Plan 31 July 20101,4 ation1 during the Year the Year2 30 July 20111 (TSR) (NPAT) Number Number Number Number Number $ $ Matthew 09-12 retention offer Durbin – Tranche 2 45,000 – – – 45,000 1.64 2.74 – Tranche 3 45,000 – – (6,750) 38,250 1.65 2.74 – Tranche 4 90,000 – – – 90,000 1.57 2.51 09-12 additional offer – Tranche 3 – 112 , 50 0 – (16,875) 95,625 4.03 4.35 – Tranche 4 – 112 , 50 0 – – 112 , 50 0 3.88 4.35

Cate 09-12 retention offer Daniels – Tranche 1 20,000 – (20,000) – – 2.09 2.97 – Tranche 2 20,000 – – – 20,000 1.64 2.74 – Tranche 3 20,000 – – (6,000) 14,000 1.65 2.74 – Tranche 4 40,000 – – – 40,000 1.57 2.51 09-12 additional offer – Tranche 3 – 200,000 – (30,000) 170,000 4.03 4.35 – Tranche 4 – 200,000 – – 200,000 3.88 4.35 $99,600 Brett 09-12 retention offer Riddington – Tranche 2 40,000 – – – 40,000 1.64 2.74 – Tranche 3 40,000 – – (12,000) 28,000 1.65 2.74 – Tranche 4 80,000 – – – 80,000 1.57 2.51 09-12 additional offer – Tranche 3 – 100,000 – (15,000) 85,000 4.03 4.35 – Tranche 4 – 100,000 – – 100,000 3.88 4.35

Former Executives Damien 09-12 retention offer Eales – Tranche 1 200,000 – (200,000) – – 2.09 2.97 – Tranche 2 200,000 – – (200,000) – 1.64 2.74 – Tranche 3 200,000 – – (200,000) – 1.65 2.74 – Tranche 4 400,000 – – (400,000) – 1.57 2.51 $996,000 Colette 09-12 retention offer Garnsey – Tranche 1 200,000 – (200,000) – – 2.09 2.97 – Tranche 2 200,000 – – (200,000) – 1.64 2.74 – Tranche 3 200,000 – – (200,000) – 1.65 2.74 – Tranche 4 400,000 – – (400,000) – 1.57 2.51 $996,000

Notes: 1 The number of rights granted to each participant in the LTI Plan may not convert to an equivalent number of ordinary shares due to the non achievement of specified financial performance and employment conditions. 2

For personal use only use personal For Rights forfeited during the year includes rights forfeited due to either the employment condition or financial performance condition not being met. 3 Non-Executive Directors are not entitled to participate in the LTI Plan and therefore no holdings are disclosed. 4 The Holding at 31 July 2010 for Executives appointed as KMP after this date, will be their holdings at the date of their appointment.

David Jones Annual Report 2011 David Jones Annual Report 2011 96 97 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

27. KMP DISCLOSURES CONTINUED EQUITY HOLDINGS OF KMP Long Term Incentive (LTI) Plan rights holdings of KMP For the 53 week period ended 31 July 2010

Forfeited/ Vested and Lapsed Fair Value Fair Value Holding at converted during the Holding at Fair Value of of Right of Right Name LTI Plan 25 July 20091 during the Year Year 2 31 July 20101 Right (TSR) (EPS) (NPAT) Number Number Number Number $ $ $ Directors2 Paul 07-09 offer 116 , 376 (116 , 376 ) – – 2.60 3.80 – Zahra 09-12 retention offer – Tranche 1 200,000 – – 200,000 2.09 – 2.97 – Tranche 2 200,000 – – 200,000 1.64 – 2.74 – Tranche 3 200,000 – – 200,000 1.65 – 2.74 – Tranche 4 400,000 – – 400,000 1.57 – 2.51 $671,490 Stephen 07-09 offer 233,601 (233,601) – – 2.03 3.23 – Goddard 08-10 offer 173,156 – – 173,156 1.69 3.02 – 09-11 retention offer – Tranche 1 519,677 – – 519,677 1.63 – 1.82 – Tranche 2 519,677 – – 519,677 1.59 – 1.82 – Tranche 3 692,904 – – 692,904 1.61 – 1.82 $1,347,878 Executives Damian 07-09 offer 101,787 (101,787) – – 2.60 3.80 – Eales 09-12 retention offer – Tranche 1 200,000 – – 200,000 2.09 – 2.97 – Tranche 2 200,000 – – 200,000 1.64 – 2.74 – Tranche 3 200,000 – – 200,000 1.65 – 2.74 – Tranche 4 400,000 – – 400,000 1.57 – 2.51 $ 587, 311 Colette 07-09 offer 116 , 376 (116 , 376 ) – – 2.60 3.80 – Garnsey 09-12 retention offer – Tranche 1 200,000 – – 200,000 2.09 – 2.97 – Tranche 2 200,000 – – 200,000 1.64 – 2.74 – Tranche 3 200,000 – – 200,000 1.65 – 2.74 – Tranche 4 400,000 – – 400,000 1.57 – 2.51 $671,490 Antony 07-09 offer 101,787 (101,787) – – 2.60 3.80 – Karp 09-12 retention offer – Tranche 1 200,000 – – 200,000 2.09 – 2.97 – Tranche 2 200,000 – – 200,000 1.64 – 2.74 – Tranche 3 200,000 – – 200,000 1.65 – 2.74 – Tranche 4 400,000 – – 400,000 1.57 – 2.51 $ 587, 311 Karen 07-09 offer 84,822 (84,822) – – 2.60 3.80 – McLachlan 09-12 retention offer

For personal use only use personal For – Tranche 1 160,000 – – 160,000 2.09 – 2.97 – Tranche 2 160,000 – – 160,000 1.64 – 2.74 – Tranche 3 160,000 – – 160,000 1.65 – 2.74 – Tranche 4 320,000 – – 320,000 1.57 – 2.51 $489,423

David Jones Annual Report 2011 David Jones Annual Report 2011 98 99 27. KMP DISCLOSURES CONTINUED EQUITY HOLDINGS OF KMP Long Term Incentive (LTI) Plan rights holdings of KMP For the 53 week period ended 31 July 2010

Forfeited/ Vested and Lapsed Fair Value Fair Value Holding at converted during the Holding at Fair Value of of Right of Right Name LTI Plan 25 July 20091 during the Year Year 2 31 July 20101 Right (TSR) (EPS) (NPAT) Number Number Number Number $ $ $ Patrick 07-09 offer 107,385 (107,385) – – 2.60 3.80 – Robinson 09-12 retention offer – Tranche 1 200,000 – – 200,000 2.09 – 2.97 – Tranche 2 200,000 – – 200,000 1.64 – 2.74 – Tranche 3 200,000 – – 200,000 1.65 – 2.74 – Tranche 4 400,000 – – 400,000 1.57 – 2.51 $619,611 Former Director Mark 07-09 offer 489,850 (489,850) – – 2.03 3.23 – McInnes 08-10 offer 381,737 – (381,737) – 1.69 3.02 – 09-11 retention offer – Tranche 1 1,016,370 – (1,016,370) – 1.63 – 1.82 – Tranche 2 1,016,370 – (1,016,370) – 1.59 – 1.82 – Tranche 3 1,355,160 – (1,355,160) – 1.61 – 1.82 $2,826,435

Notes: 1 The number of rights granted to each participant in the LTI Plan may not convert to an equivalent number of ordinary shares due to the non achievement of specified financial performance and employment conditions.

2 Non-Executive Directors are not entitled to participate in the LTI Plan and therefore no holdings are disclosed. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 98 99 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

27. KMP DISCLOSURES CONTINUED Shareholdings of KMP The following tables show the movements in the number of ordinary shares held in the Company, directly, indirectly or beneficially, by each KMP, including their related parties, for the current financial year. Allocated Holding at Granted as under Net change Holding at For the 52 week period ended 30 July 2011 31 July 2010 remuneration LTI Plan – other1 30 July 2011 Directors Robert Savage 130,882 – – 6,277 137,159 John Coates 52,587 – – 2,184 54,771 Paul Zahra 293,926 – 200,000 – 493,926 Stephen Goddard 607,460 – 156,741 (156,741) 607,460 Reginald Clairs 188,031 – – 521 188,552 John Harvey 35,650 – – 9,279 44,929 Katie Lahey 22,733 – – 518 23,251 Peter Mason 113,940 – – 7,566 121,506 Philippa Stone 9,754 – – – 9,754 Executives Antony Karp 349,651 – 200,000 (174,641) 375,010 Karen McLachlan 87,715 – 160,000 (244,631) 3,084 Patrick Robinson 286,171 – 200,000 (284,936) 201,235 Paula Bauchinger 116,329 – 68,000 (58,000) 126,329 Cate Daniels 30,682 – 20,000 3,032 53,714 Matthew Durbin 98,437 – 45,000 (140,262) 3,175 Brett Riddington – – 40,000 – 40,000 Sacha Laing – – 45,000 – 45,000 Former Executives Damian Eales 253,613 – 200,000 (453,613) – Colette Garnsey 22,005 – 200,000 (222,005) –

Notes: 1 ‘Net change – other’ includes on-market purchases and sales of ordinary shares, shares acquired through the dividend reinvestment

plan, and the closing balance of Executives that have departed the Company. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 100 101 27. KMP DISCLOSURES CONTINUED Shareholdings of KMP continued The following tables show the movements in the number of ordinary shares held in the Company, directly, indirectly or beneficially, by each KMP, including their related parties, for the prior financial year. Allocated Holding at Granted as under Net change Holding at For the 53 week period ended 30 July 2010 25 July 2009 remuneration LTI Plan – other1 31 July 2010 Directors Robert Savage 125,782 – – 5,100 130,882 John Coates 49,776 – – 2,811 52,587 Paul Zahra 820,692 – 116,376 (643,142) 293,926 Stephen Goddard 1,123,859 – 233,601 (750,000) 607,460 Reginald Clairs 185,528 – – 2,503 188,031 John Harvey 33,745 – – 1,905 35,650 Katie Lahey 22,316 – – 417 22,733 Peter Mason 107,850 – – 6,090 113,940 Philippa Stone 9,754 – – – 9,754 Former Director Mark McInnes 1,000,303 – 1,674,070 (2,674,373) – Executives Damian Eales 751,826 – 101,787 (600,000) 253,613 Colette Garnsey 5,629 – 116,376 (100,000) 22,005 Antony Karp 522,025 – 101,787 (274,161) 349,651 Karen McLachlan 402,739 – 84,822 (399,846) 87,715 Patrick Robinson 807,142 – 107,385 (628,356) 286,171

Notes: 1 ‘Net change – other’ includes on-market purchases and sales of ordinary shares, shares acquired through the dividend reinvestment plan, and the closing balance of Executives that have departed the Company.

Other transactions and balances with KMP David Jones employees, including KMPs, are entitled to a staff discount on purchases made from the Consolidated Entity. The discount varies depending on the merchandise purchased and did not exceed 20% (2010: 10%)

Loans to KMP There were no loans between the Consolidated Entity and KMPs during the current or prior financial year except for amounts due for

purchases made on an arm’s length basis on the David Jones store card and the David Jones American Express Card. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 100 101 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

28. EMPLOYEE SHARE PLANS Share-based payment arrangements The Consolidated Entity provides share-based payment arrangements to employees under the following plans: – LTI and Retention Plans – Employee Share Plan – EESP – DESP

LTI and Retention Plans Rights to ordinary shares are granted to senior executives under the LTI and Retention Plans. The number of rights that vest is dependent upon the achievement of specified performance conditions. The rights can only be equity settled in ordinary shares. The information in the tables that follow relate to both the Consolidated Entity and the Company.

Movements in the LTl and Retention Plans rights for the 52 week period ended 30 July 2011:

NUMBER OF LTI AND RETENTION PLAN RIGHTS Vested and Fair Fair Granted Forfeited converted value per value per Balance at during during during Balance at right TSR right NPAT Offer Description/Performance Period Date of Grant Expiry Date start of year period period period end of year hurdle hurdle 08 – 10 Offer Executive Directors 23 July 2008 31 July 2010 173,156 – 16,415 156,741 – $1.69 $3.02 29 July 2007 – 31 July 2010 09 – 12 Retention Offer – Tranche 1 24 July 2008 October 2,706,000 – 11,000 2,695,000 – $2.09 $2.97 27 July 2008 – 25 July 2009 2010 09 – 12 Retention Offer – Tranche 2 24 July 2008 October 2,718,384 – 438,000 – 2,280,384 $1.64 $2.74 26 July 2009 – 31 July 2010 2011 09 – 12 Retention Offer – Tranche 3 24 July 2008 October 2,726,000 – 981,030 – 1,744,970 $1.65 $2.74 1 August 2010 – 30 July 2011 2011 09 – 12 Retention Offer – Tranche 4 24 July 2008 October 5,502,000 – 876,000 – 4,626,000 $1.57 $2.51 31 July 2011 – 28 July 2012 2012 Retention Offer Executive Directors 28 October 519,677 – – – 519,677 $1.63 $1.82 – Tranche 1 November 2011 27 July 2008 – 25 July 2009 2008 Retention Offer Executive Directors 28 October 519,677 – – – 519,677 $1.59 $1.82 – Tranche 2 26 July 2009 – 31 July November 2011 2010 2008 Retention Offer Executive Directors 28 October 692,904 – 103,936 – 588,968 $1.61 $1.82 – Tranche 3 November 2011 1 August 2010 – 30 July 2011 2008 09 – 12 Additional Retention – 1 November October – 550,000 82,500 – 467,500 $4.03 $4.35 Tranche 3 2010 2012 1 August 2010 – 30 July 2011 09 – 12 Additional Retention Offer – 1 November October – 650,000 – – 650,000 $3.88 $4.35 Tranche 4 2010 2012 31 July 2011 – 28 July 2012 09 – 12 Additional Retention Offer 3 December October – 250,000 37,500 – 212,500 $3.64 $3.95 Executive Directors – Tranche 3 2010 2012

For personal use only use personal For 1 August 2010 – 30 July 2011 09 – 12 Additional Retention Offer 3 December October – 500,000 – – 500,000 $3.45 $3.95 Executive Directors – Tranche 4 2010 2012 31 July 2011 – 28 July 2012

The numbers disclosed above are the number of rights allocated to all participants in the plans. The actual number of shares issued to plan participants could be lower and is dependent on the satisfaction of Company performance and the employee meeting the employment conditions under the plan.

David Jones Annual Report 2011 David Jones Annual Report 2011 102 103 28. EMPLOYEE SHARE PLANS CONTINUED LTI Plan continued Movements in the LTl Plan rights for the 53 week period ended 31 July 2010:

NUMBER OF LTI AND RETENTION PLAN RIGHTS Vested and Fair value Balance Granted Forfeited converted Balance Fair value per right Offer Description/ at start during during during at end per right EPS/NPAT Performance Period Date of Grant Expiry Date of year period period period of year TSR hurdle hurdle 07–09 Offer 1 December 31 July 2009 723,451 – – 723,451 – $2.03 $3.23 Executive Directors 2006 1 August 2006 – 31 July 2009 07–09 Offer 1 March 2007 31 July 2009 1,246,134 – – 1,246,134 – $2.60 $3.80 1 August 2006 – 31 July 2009 08–10 23 July 2008 31 July 2010 554,893 – 381,737 – 173,156 $1.69 $3.02 Offer Executive Directors 29 July 2007 – 31 July 2010 09–12 Retention Offer 24 July 2008 October 2010 2,801,000 – 95,000 – 2,706,000 $2.09 $2.97 – Tranche 1 27 July 2008 – 25 July 2009 09–12 Retention Offer 24 July 2008 October 2011 2,801,000 20,000 102,616 – 2,718,384 $1.64 $2.74 – Tranche 2 26 July 2009 – 31 July 2010 09–12 Retention Offer 24 July 2008 October 2011 2,801,000 20,000 95,000 – 2,726,000 $1.65 $2.74 – Tranche 3 1 August 2010 – 30 July 2011 09–12 Retention Offer 24 July 2008 October 2012 5,602,000 90,000 190,000 – 5,502,000 $1.57 $2.51 – Tranche 4 31 July 2011– 28 July 2012 Retention Offer Executive 28 November October 2011 1,536,047 – 1,016,370 – 519,677 $1.63 $1.82 Directors – Tranche 1 2008 27 July 2008 – 25 July 2009 Retention Offer Executive 28 November October 2011 1,536,047 – 1,016,370 – 519,677 $1.59 $1.82 Directors – Tranche 2 2008 26 July 2009 – 31 July 2010 Retention Offer Executive 28 November October 2011 2,048,064 – 1,355,160 – 692,904 $1.61 $1.82 Directors – Tranche 3 2008 1 August 2010 – 30 July 2011

The numbers disclosed above are the number of rights allocated to all participants in the plans. The actual number of shares issued to plan participants could be lower and is dependent on the satisfaction of Company performance and the employee meeting the

employment conditions under the plan. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 102 103 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

28. EMPLOYEE SHARE PLANS CONTINUED LTI and Retention Plans continued 2011 2010 NUMBER NUMBER Shares issued under the plan to participating employees on 30 September 2010 (2010: 2 October 2009) 2,851,741 1,969,585

$ $ Market price of David Jones Limited shares on the date of issue 4.98 5.77

Summary of LTI and Retention Plans

OFFER FY2009 – FY2012 OFFER FY2009 – FY2011 OFFER OFFERED TO Senior Executives Finance Director VESTING DATE Staggered up to October 2012 October 2011 PERFORMANCE MEASURES TSR compared to peer group and NPAT TSR compared to peer group and NPAT RETESTING RULES No Retest PLAN STATUS Tranche 1 and 2 fully vested at stretch Tranche 1 and 2 vested at stretch performance Tranche 3 vested at stretch for TSR and 3rd and final tranche vested at stretch for TSR between target and stretch for NPAT and between target and stretch for NPAT Final Tranche performance period not yet concluded ASX LISTED RETAILERS PEER GROUP FOR Funtastic Limited, Harvey Norman Holdings Fantastic Holdings Limited, Funtastic Limited, TSR COMPARATOR Limited, JB Hi-Fi Limited, Metcash Limited, Nick Harvey Norman Holdings Limited, JB Hi-Fi Scali Limited, Orotongroup Limited, Specialty Limited, Metcash Limited, Nick Scali Limited, Fashion Group Limited, Super Retail Group Orotongroup Limited, Specialty Fashion Group Limited and Woolworths Limited. Limited, Super Retail Group Limited and Woolworths Limited. NON-RETAILERS THAT DEMONSTRATE CYCLICAL PATTERNS PEER GROUP FOR APN News & Media Limited, Consolidated APN News & Media Limited, Austar United TSR COMPARATOR Media Holdings Limited, Fairfax Media Limited, Communications Limited, Consolidated Media Fisher & Paykel Appliances Holdings Limited, Holdings Limited, Fairfax Media Limited, Flight Centre Limited, Globe International Fisher & Paykel Appliances Holdings Limited, Limited, GUD Holdings Limited, Breville Flight Centre Limited, GUD Holdings Limited, Group Limited, Kresta Holdings Limited, Pacific Breville Group Limited, Southern Cross Media Brands Limited, PMP Limited, Salmat Limited, Group, Pacific Brands Limited, PMP Limited, Seven Group Limited, STW Communications Premier Investments Limited, Salmat Limited, Group Limited, Ten Network Holdings Seven Group Limited, STW Communications Limited, Wesfarmers Limited and Seven West Group Limited, Ten Network Holdings Media Limited. Limited, Wesfarmers Limited and Seven West

Media Limited. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 104 105 28. EMPLOYEE SHARE PLANS CONTINUED Inputs into the valuation of LTI Plan rights and retention rights The valuation of the LTI and Retention Rights were prepared by an independent valuer using the Black Scholes and Monte Carlo pricing models. The valuations of LTI Plan rights were based on the following inputs: FY2008 – FY2010 Offer to Executive Directors Grant date 23 July 2008 Share price $3.33 Dividend yield 4.90% Risk free rate 6.66% Exercise price – Volatility 33% Valuation TSR EPS $1.69 $3.02 Valuation model used TSR – Monte Carlo simulation EPS – Black Scholes

The valuation of FY2009 – FY2012 retention rights to Executives: Tranche 1 Tranche 2 Tranche 3 Tranche 4 Grant date 24 July 2008 24 July 2008 24 July 2008 24 July 2008 Share price $3.44 $3.44 $3.44 $3.44 Dividend yield 7.41% 7.66% 7.66% 7.96% Risk free rate 6.57% 6.50% 6.50% 6.43% Volatility 33% 33% 33% 33% Value per right – NPAT $2.97 $2.74 $2.74 $2.51 Value per right – TSR $2.09 $1.64 $1.65 $1.57

The valuation of FY2009 – FY2011 retention rights to the Executive Director: Tranche 1 Tranche 2 Tranche 3 Grant date 28 November 2008 28 November 2008 28 November 2008 Share price (5 day VWAP) $2.50 $2.50 $2.50 Dividend yield 11.91% 11.91% 11.91% Risk free rate 3.5% 3.5% 3.5% Volatility 39% 39% 39% Value per right – NPAT $1.82 $1.82 $1.82

Value per right – TSR $1.63 $1.59 $1.61 For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 104 105 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

28. EMPLOYEE SHARE PLANS CONTINUED Inputs into the valuation of LTI Plan rights and retention rights continued The valuation of additional FY2009 – FY2012 retention rights to the Executive Directors: Tranche 3 Tranche 4 Grant date 3 December 2010 3 December 2010 Share price $4.39 $4.39 Dividend yield 7.27% 7.45% Risk free rate 5.18% 4.96% Volatility 36% 36% Value per right – NPAT $3.95 $3.95 Value per right – TSR $3.64 $3.45

The valuation of additional FY2009 – FY2012 retention rights to Executives: Tranche 3 Tranche 4 Grant date 1 November 2010 1 November 2010 Share price $4.79 $4.79 Dividend yield 6.66% 6.83% Risk free rate 5.00% 4.87% Volatility 38% 38% Value per right – NPAT $4.35 $4.35

Value per right – TSR $4.03 $3.88 For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 106 107 Employee Share Plan (ESP) Board. Shares acquired under the offer must remain in the EESP The ESP provides employees with an interest-free loan to enable until the earlier of three years after allocation, or termination of the purchase of ordinary shares in the Company. Shares under employment of the participant. the ESP were acquired by a trustee on behalf of the employee. The Plan Trustee will use funds it receives from the Company Dividends and other distributions on the shares are applied to to either subscribe to a new issue of shares in the Company on repay the outstanding loan balance. The shares vest with the behalf of the participating employees or purchase shares on the employee after three years. Each shareholder loan is limited in ASX on behalf of the participating employees. These shares will recourse to the proceeds on sale of the shares acquired. be registered in the name of the Plan Trustee on behalf of the The ESP is divided into a General and Executive division. EESP participants.

General division No shares were issued to eligible employees during the period and no shares were purchased by the Trustee on behalf of This division was open to all full-time and permanent part-time participants under the Plan. employees with more than twelve months continuous service and casual employees whose service was deemed by the Deferred Employee Share Plan (DESP) Company to be more than five years’ continuous service. The Shareholders approved the DESP at the Annual General Meeting Company had discretion to offer shares to particular employees held on 23 November 1998. with lesser periods of service. In 1995 each eligible employee received between 500 and 5,000 shares, depending upon their This plan provides eligible employees the opportunity to acquire position within the Company. an ownership interest in the Company. Eligible employees may salary sacrifice a minimum of $3,000 per annum to acquire A total of 2,571,500 shares ($5,143,000) were issued under the ordinary shares in the capital of the Company each year. initial offer to employees under this division of the ESP on 27 November 1995. No shares have been issued under the general Under the rules of the DESP, the Board may impose relevant division since the initial offer. requirements, being vesting conditions and other conditions before the participant can withdraw shares from the DESP. Executive division When a participating employee’s employment ends, they will No shares under the Executive Division remain on issue to receive the Company’s shares held on their behalf except where executives as they have all been forfeited by executives and sold relevant requirements have been imposed by the Board and are by the Trustee. not met or where an employee has been dismissed as a result of Exempt Employee Share Plan (EESP) fraudulent or wrongful conduct in which case the Board has the discretion to require forfeiture of any shares under the plan. The EESP provides eligible employees the opportunity to acquire an ownership interest in the Company. Non Executive Directors In light of the 2009 Federal Budget announced changes to of the Company are not eligible to participate in the EESP. Eligible employee share plans, the Board approved the suspension of the employees may be offered up to $1,000 worth of the Company’s DESP to new share acquisitions effective 4 June 2009. The DESP ordinary shares each year, provided specific financial and is currently under review. qualitative corporate objectives are met to the satisfaction of the

Details of the shares in each plan for the year are as follows: ESP EESP DESP Number Number Number Shares held in plan at 31 July 2010 316,500 269,699 309,648 Share issued from DRP – 4,965 6,603 Shares disposed during the year (316,500) (15,735) (169,120) Shares held in plan at 30 July 2011 – 258,929 147,131

$ $ $

For personal use only use personal For David Jones share price at 30 July 2011 3.00 3.00 3.00 Market value of shares – 776,787 441,393 Loan balance at 31 July 2010 136,860 – – Loan repayments (136,860) – – Loan balance at 30 July 2011 – – –

David Jones Annual Report 2011 David Jones Annual Report 2011 106 107 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

Class of Share Interest Held 2011 2010 % %

29. CONSOLIDATED ENTITIES Parent entity: David Jones Limited (i) Subsidiaries: (ii) Aherns Holdings Pty Ltd (investor) Ordinary 100 100 Ahern’s (Suburban) Pty Ltd (retailer) (iii) Ordinary 100 100 Akitin Pty Limited (investor) Ordinary 100 100 Helland Close Pty Ltd (liquor licence holder) Ordinary 100 100 299-307 Bourke Street Pty Ltd (property owner) (iv) Ordinary 100 100 David Jones Credit Pty Limited (investor) Ordinary 100 100 John Martin Retailers Pty Limited (non-operating) Ordinary 100 100 David Jones Financial Services Limited (financial services) Ordinary 100 100 David Jones Insurance Pty Limited (financial services) Ordinary 100 100 David Jones Finance Pty Limited (finance company) Ordinary 100 100 David Jones (Adelaide) Pty Limited (investor) (v) Ordinary 100 100 Buckley & Nunn Pty Limited (investor) Ordinary 100 100 David Jones Properties (South Australia) Pty Limited (investor) Ordinary 100 100 David Jones Properties (Victoria) Pty Limited (property owner) Ordinary 100 100 David Jones Properties (Queensland) Pty Limited (property owner) Ordinary 100 100 Speertill Pty Ltd (liquor licence holder) Ordinary 100 100 David Jones Properties Pty Limited (property owner) Ordinary 100 100 David Jones Employee Share Plan Pty Limited (corporate trustee) Ordinary 100 100 David Jones Share Plans Pty Limited (corporate trustee) Ordinary 100 100

Notes: (i) David Jones Limited is the ultimate parent entity. (ii) All subsidiaries are incorporated in Australia and carry on business in their country of incorporation. (iii) Issued capital is owned by Aherns Holdings Pty Ltd. (iv) Issued capital is owned by David Jones Finance Pty Limited.

(v) Issued capital of the entity is owned 50% by David Jones Limited and 50% by David Jones Properties (South Australia) Pty Limited. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 108 109 30. RELATED PARTY DISCLOSURES Transactions between Directors and the Company From time to time Directors may purchase goods from the Company. These purchases are on the same terms and conditions as those entered into by senior management. In the ordinary course of business, the Company has paid amounts to Director-related entities for services provided on an arms length basis. The terms and conditions of these transactions were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions with non-related entities. Details of indemnification and insurance of Directors and Officers are disclosed in the Directors’ Report.

Interest in controlled entities Information relating to controlled entities is set out in notes 5, 24 and 29.

Superannuation plans The Company contributes to several defined contribution superannuation plans. All superannuation contributions are made in accordance with the relevant trust deeds and the Superannuation Guarantee Charge.

Other related party transactions

Interest on borrowings between related entities is charged at commercial rates, which are determined at the discretion of the Company. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 108 109 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

31. CAPITAL AND FINANCIAL RISK MANAGEMENT Capital Risk Management The Consolidated Entity’s key objective when managing capital is to minimise its weighted average cost of capital while retaining flexibility to pursue growth and capital management opportunities. In managing its capital structure, the Consolidated Entity also seeks to safeguard it’s ability to continue as a going concern so that it can continue to provide appropriate returns to shareholders and benefits for other stakeholders. Total capital of the Consolidated Entity consists of debt, which includes interest bearing liabilities (refer note 17), cash and cash equivalents (refer note 8), and equity comprising issued capital, reserves and retained earnings (refer notes 21, 22 and 23 respectively and the Statement of Changes in Equity). The capital structure of the Consolidated Entity is monitored using a gearing ratio based on balances at year end. The gearing ratio is calculated as net debt divided by the sum of net debt plus equity. Net debt is calculated as total interest bearing liabilities less cash and cash equivalents and equity is calculated with reference to the amount of equity shown in the Statement of Financial Position. The calculation of the Consolidated Entity’s gearing ratio at the balance date of 13.3% (2010: 10.4%) is shown below: 2011 2011 2010 2010 $000 % $000 % Gearing Ratio Net debt 120,240 13.3 86,351 10.4 Equity 785,480 86.7 744,238 89.6 Capital employed 905,720 100.0 830,589 100.0

The Company utilises its Dividend Reinvestment Plan to assist with raising equity for the expansion of its retail store portfolio. The Company’s policy for dividend payments to shareholders is to maintain a payout ratio of not less than 85% of profit after tax. Franking

credits available for distribution after 30 July 2011 are estimated to be $43.021 million (following payment of the 2011 final dividend). For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 110 111 31. CAPITAL AND FINANCIAL RISK MANAGEMENT CONTINUED Financial Risk Management The Consolidated Entity’s key objective of financial risk management is to drive profitable growth while limiting its exposure to adverse financial impacts arising from exposures to market, credit and liquidity risks. By setting and implementing appropriate policies, creating transparent limits on risk exposures, optimising investment decision making and developing analytical capabilities, risk management contributes to the Consolidated Entity’s efforts to create shareholder and customer value. In addition to business risk, the Consolidated Entity recognises four fundamental sources of financial risk: (a) Interest rate risk (b) Foreign currency risk (c) Credit risk (d) Liquidity risk The Consolidated Entity seeks to manage these risks using derivative financial instruments, and by setting appropriate policies and transaction limits for counterparties. The use of financial derivatives is governed by written policies approved by the Company’s Board of Directors, including the Treasury Policy and Delegations Manual. The level of exposure to the above sources of risk is routinely monitored by the Company’s Board of Directors. The Consolidated Entity’s Treasury department is responsible for the management of these risks. A summary of the underlying economic positions as represented by the carrying values and fair values of the Consolidated Entity’s financial assets and financial liabilities is shown below: CARRYING AMOUNT FAIR VALUE 2011 2010 2011 2010 $000 $000 $000 $000 Financial Assets Cash and cash equivalents 11,703 17,594 11,703 17,594 Receivables 19,637 22,750 19,637 22,750 Forward exchange contracts – 14 – 14 Shares in other corporations 12 12 12 12 Total financial assets 31,352 40,370 31,352 40,370

Financial Liabilities Payables 216,429 244,529 216,429 244,529 Current tax liabilities 18,654 22,957 18,654 22,957 Interest bearing liabilities: – Bank overdraft 2,943 2,945 2,943 2,945 – Unsecured bank loan 129,000 101,000 128,648 97,127 Forward exchange contracts 921 1,559 921 1,559 Interest rate swap contracts 488 364 488 364

Total financial liabilities 368,435 373,354 368,083 369,481 For personal use only use personal For

Significant accounting policies in relation to the financial assets and financial liabilities are disclosed in note 1. Unless otherwise stated, all calculations and methodologies are unchanged from prior reporting periods. A description of each of the fundamental sources of risk recognised by the Consolidated Entity is summarised in sections (a) to (d) of this note.

David Jones Annual Report 2011 David Jones Annual Report 2011 110 111 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

31. CAPITAL AND FINANCIAL RISK MANAGEMENT CONTINUED Fair Value The Consolidated Entity uses various methods in estimating the fair value of a financial instrument. The methods comprise: Level 1: Fair value is calculated using quoted prices in active markets Level 2: Fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). Level 3: Fair value is estimated using inputs for the asset or liability that are not based on observable market data. The categorisation of the fair value of the financial instruments disclosed in the Statement of Financial Position is shown below. Level 1 Level 2 Level 3 Total $000 $000 $000 $000 2011 Financial Assets Forward exchange contracts – – – – Shares in other corporations – 12 – 12 – 12 – 12

Financial Liabilities Forward exchange contracts – 921 – 921 Interest rate swap contracts – 488 – 488 – 1,409 – 1,409

2010 Financial Assets Forward exchange contracts – 14 – 14 Shares in other corporations – 12 – 12 – 26 – 26

Financial Liabilities Forward exchange contracts – 1,559 – 1,559 Interest rate swap contracts – 364 – 364

– 1,923 – 1,923 For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 112 113 31. CAPITAL AND FINANCIAL RISK MANAGEMENT CONTINUED (a) Interest rate risk Interest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. The Consolidated Entity’s exposure to the risk of changes in market interest rates relates primarily to unsecured bank loans. The Consolidated Entity’s policy is to manage its interest cost using a mix of fixed and variable rate debt and to enter into interest rate swap contracts in respect of these underlying transactions. At balance date, there was no fixed rate debt (2010: nil). The floating rates were at bank bill rates plus the Consolidated Entity’s credit margin. The table below shows the level of exposure to interest rate risk at balance date for financial assets and financial liabilities with a variable rate of interest: Interest Non Interest Average Bearing Bearing Total Interest Rate $000 $000 $000 % Per annum 2011 Financial Assets Cash and cash equivalents – 11,703 11,703 N/A – 11,703 11,703

Financial Liabilities Bank overdraft 2,943 – 2,943 10.21 Unsecured bank loan 129,000 – 129,000 5.36 131,943 – 131,943

2010 Financial Assets Cash and cash equivalents 6,000 11,594 17,594 4.50 6,000 11,594 17,594

Financial Liabilities Bank overdraft 2,945 – 2,945 5.10 Unsecured bank loan 101,000 – 101,000 5.30 103,945 – 103,945

Interest rate sensitivity analysis The table below shows the effect on profit before tax and equity, if interest rates at balance date had been 100 basis points (bps) higher or lower with all other variables remaining constant.

Profit before Tax Equity 2011 2010 2011 2010 $000 $000 $000 $000

Interest rates 100bps higher: increase/(decrease) in: (1,319) (979) 717 663 For personal use only use personal For Interest rates 100bps lower: increase/(decrease) in: 1,319 979 (688) (684)

A sensitivity interval of 100bps has been selected based on an analysis of historical rates and market expectations of the direction of future interest rates in Australia. A 100bps upward shift would move short term interest rates at balance date from 5.36 % to 6.36 % (2010: 5.30% to 6.30%), and from 5.36 % to 4.36 % for an equivalent downward shift (2010: 5.30% to 4.30%). This sensitivity interval of 100bps is considered reasonable in view of the current volatility in the financial markets.

David Jones Annual Report 2011 David Jones Annual Report 2011 112 113 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

31. CAPITAL AND FINANCIAL RISK MANAGEMENT CONTINUED (b) Foreign currency risk Foreign currency risk refers to the risk that the value or the cash flows arising from a financial commitment, or recognised asset or liability will fluctuate due to changes in foreign currency rates. The Consolidated Entity has exposure to movements in foreign exchange rates in relation to forecast purchases of imported goods denominated in foreign currencies. The Consolidated Entity enters into forward foreign exchange contracts to hedge its foreign currency risk. Currencies utilised to purchase imported goods are denominated in Euros, United States Dollars, Hong Kong Dollars and Pounds Sterling. It is the Consolidated Entity’s policy to negotiate the terms of the hedge derivative instrument to match the terms of the hedged item so as to maximise hedge effectiveness. All forward currency contracts are in the same currency as the hedged item. At balance date, the Consolidated Entity had hedged 96% (2010: 97%) of its forecast purchases of imported goods denominated in foreign currencies. The following table sets out the gross value to be paid under foreign currency contracts and the weighted average contracted exchange rates of contracts outstanding at balance date. All contracts mature by July 2012. The information shown is for the Consolidated Entity and the Company.

AUSTRALIAN DOLLAR EXCHANGE RATE EQUIVALENT 2011 2010 2011 2010 $000 $000 Buy Euros 0.7216 0.6380 15,086 23,921 Buy United States Dollars 1.0327 0.8312 4,737 3,221 Buy Hong Kong Dollars 7.7557 6.8209 97 134 Buy Pounds Sterling 0.6269 0.5898 469 412 20,389 27,688

As these contracts are hedging firm purchase commitments, any unrealised gains and losses on the contracts, together with the cost of the contracts, will be recognised in the Financial Statements at the time the underlying transaction occurs. The mark to market loss on the contracts at balance date was $0.920 million (2010: $1.545 million loss). The Consolidated Entity also enjoys a natural hedge for adverse foreign currency fluctuations relating to the purchase of imported goods through its ability to set the retail price of this merchandise.

Foreign currency exchange rate sensitivity analysis The table below shows the effect on both the profit before tax and equity if foreign exchange rates at balance date had been 10% higher or lower with all other variables remaining constant.

Profit before Tax Equity 2011 2010 2011 2010 $000 $000 $000 $000 Foreign Currency Exchange Rate Sensitivity Analysis Foreign exchange rates 10% higher: increase/(decrease) in: 81 62 (1,748) (2,337) Foreign exchange rates 10% lower: increase/(decrease) in: (99) (76) 2,140 2,859

A sensitivity interval of 10% is considered reasonable based on an analysis of historical exchange rate movements over the last five For personal use only use personal For years, and expectations of potential future movements in exchange rates.

David Jones Annual Report 2011 David Jones Annual Report 2011 114 115 31. CAPITAL AND FINANCIAL RISK MANAGEMENT CONTINUED (c) Credit risk Credit risk is the risk that a contracting entity or counterparty will not complete its obligations under a financial instrument and cause the Consolidated Entity to incur a financial loss. The Consolidated Entity has exposure to institutional credit risk on: i) short term cash deposits; ii) foreign exchange contracts; and iii) interest rate swap contracts.

Institutional credit risk Institutional credit risk arises principally from short term deposits, derivative financial instruments and other receivables between the Consolidated Entity and a counterparty. Unlike consumer credit risk, institutional credit risk is characterised by a lower loss frequency but higher severity. Under the Company’s Treasury policy, credit risk on short term deposits and derivative hedge instruments is mitigated, as counterparties are required to be pre-approved financial institutions, with a minimum Standard & Poor’s long term credit rating of A. Dealing limits are also applied to each counterparty. The maximum exposure to credit risk of the Consolidated Entity at balance date, by class of financial asset is represented by the carrying amount of the financial assets presented in the Statement of Financial Position and notes to the Financial Statements. The Consolidated Entity does not have any significant credit risk exposure to a single or group of customers or institutions. At 30 July 2011, the Consolidated Entity had 100% of its aggregate institutional credit risk spread over five counterparties, with a Standard & Poor’s long term credit rating of A to AA.

(d) Liquidity risk Liquidity risk is the risk that the Consolidated Entity will not be able to meet its financial obligations as and when they fall due. The Consolidated Entity’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to its reputation. Various factors are considered by the Consolidated Entity in determining its liquidity needs including economic and financial market conditions, the retail industry cycle, seasonality in business operations, growth in business segments, cost and availability of alternative liquidity sources. The Consolidated Entity’s Treasury Policy requires it to have readily accessible funding arrangements in place, and to maintain a minimum liquidity reserve of $40.000 million at all times in the form of undrawn standby facilities. The balance of the liquidity reserve

at the balance date was $247.542 million (2010: $273.731 million). For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 114 115 notes to the financial statements

For the 52 weeks ended 30 July 2011 and 53 weeks ended 31 July 2010 David Jones Limited and its controlled entities

31. CAPITAL AND FINANCIAL RISK MANAGEMENT CONTINUED (d) Liquidity risk continued The contractual maturities of financial liabilities are set out below: Maturing in: 0 – 6 6 – 12 Over 1 Months Months to 5 Years Total $000 $000 $000 $000 2011 Financial Liabilities Payables 216,429 – – 216,429 Bank overdraft 3,070 – – 3,070 Unsecured bank loan 3,488 3,451 130,138 137,077 Forward exchange contracts 15,567 4,822 – 20,389 Interest rate swap contracts 97 252 139 488 238,651 8,525 130,277 377,453

2010 Financial Liabilities Payables 244,529 – – 244,529 Bank overdraft 3,008 – – 3,008 Unsecured bank loan 2,700 2,656 107,221 112,577 Forward exchange contracts 15,088 12,601 – 27,689 Interest rate swap contracts – – 364 364 265,325 15,257 107,585 388,167

The cash flows presented above are contractual and calculated on an undiscounted basis. They are based on interest rates at balance date and may not therefore reconcile to the carrying amounts shown in the Statement of Financial Position. The foreign exchange and interest rate swap contracts are classified as being effective hedging instruments and therefore all cash flow movements will be

recognised in the Statement of Financial Position. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 116 117 32. PARENT ENTITY DISCLOSURES As at, and throughout the 52 week period ending 30 July 2011, the parent company of the Group was David Jones Limited.

DAVID JONES LIMITED 2011 2010 $000 $000 Result of the Parent Entity Profit for the period 163,216 166,978 Other comprehensive income 351 (262) Total comprehensive income for the period 163,567 166,716

Financial Position of the Parent Entity At Period End Current assets 326,733 320,597 Total assets 1,308,943 1,282,236

Current liabilities 524,854 532,105 Total liabilities 558,791 568,488

Total Equity of the Parent Entity Contributed equity 525,105 502,199 Share based payments reserve 75,633 68,071 Cash flow hedge reserve (644) (1,082) Retained earnings 150,059 144,560 Total Equity 750,153 713,748

Parent entity contingent liabilities Contingent liabilities in relation to the Company are disclosed in note 24.

Parent entity capital commitments for acquisition of plant and equipment Capital commitments for the acquisition of plant and equipment in relation to the Company are disclosed in note 25.

33. EVENTS SUBSEQUENT TO REPORTING DATE Dividends

Dividends declared by the Company after 30 July 2011 are disclosed in note 6. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 116 117 directors’ declaration

In the opinion of the Directors: (a) the Financial Statements, notes and the additional disclosures included in the Directors’ Report designated as audited, of the Consolidated Entity are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Consolidated Entity’s financial position as at 30 July 2011 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and Corporations Regulations 2001. (b) the Financial Statements and notes also comply with International Financial Reporting Standards as disclosed in note 1(b). (c) there are reasonable grounds to believe that the Consolidated Entity will be able to pay its debts as and when they become due and payable. (d) As at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in note 24 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee. (e) This declaration has been made after receiving the declarations required to be made to the Directors in accordance with Section 295A of the Corporations Act 2001 for the financial year ending 30 July 2011. Signed in accordance with a resolution of the Directors:

Robert Savage Paul Zahra Chairman Executive Director and Chief Executive Officer

Sydney, 6 October 2011 For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 118 119 auditor’s independence declaration

Auditor’s Independence Declaration to the Directors of David Jones Limited In relation to our audit of the financial report of David Jones Limited for the 52 weeks ended 30 July 2011, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.

Ernst & Young Graeme McKenzie Partner

6 October 2011 For personal use only use personal For

Liability limited by a scheme approved under Professional Standards Legislation

David Jones Annual Report 2011 David Jones Annual Report 2011 118 119 independent audit report

Independent auditor’s report to the members of David Jones Limited

Report on the Financial Report We have audited the accompanying financial report of David Jones Limited, which comprises the consolidated statement of financial position as at 30 July 2011, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the 52 weeks then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards.

Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence In conducting our audit we have met the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is set out on page 119 and forms part of the Directors’

Report. For personal use only use personal For

Liability limited by a scheme approved under Professional Standards Legislation

David Jones Annual Report 2011 David Jones Annual Report 2011 120 121 independent audit report

Auditor’s Opinion In our opinion: 1. the financial report of David Jones Limited is in accordance with the Corporations Act 2001, including: i giving a true and fair view of the consolidated entity’s financial position as at 30 July 2011 and of its performance for the 52 weeks ended on that date; and ii complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001. 2. the financial report also complies with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Report on the Remuneration Report We have audited the Remuneration Report included in pages 40 to 59 of the directors’ report for the 52 weeks ended 30 July 2011. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor’s Opinion In our opinion the Remuneration Report of David Jones Limited for the 52 weeks ended 30 July 2011, complies with section 300A of the Corporations Act 2001.

Ernst & Young Graeme McKenzie Partner Sydney

6 October 2011 For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 120 121 shareholder information

As at 28 September 2011 David Jones Limited and its controlled entities

Current shareholder information is available on the Company’s website which is updated regularly.

TOP 20 ORDINARY SHAREHOLDERS SHAREHOLDER NUMBER OF SHARES % 1 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 92,885,455 17.84 2 NATIONAL NOMINEES LIMITED 46,537,175 8.94 3 J P MORGAN NOMINEES AUSTRALIA LIMITED 38,218,598 7.34 4 CITICORP NOMINEES PTY LIMITED 11,632,484 2.23 5 J P MORGAN NOMINEES AUSTRALIA LIMITED 4,201,571 0.81 6 PERPETUAL TRUSTEE COMPANY LIMITED 3,975,387 0.76 7 ARGO INVESTMENTS LIMITED 3,426,706 0.66 8 COGENT NOMINEES PTY LIMITED 3,033,073 0.58 9 DAVID JONES SHARE PLANS PTY LTD 2,805,717 0.54 10 UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD 2,762,635 0.53 11 CITICORP NOMINEES PTY LIMITED 2,691,668 0.52 12 CS FOURTH NOMINEES PTY LTD 2,367,398 0.45 13 STEPHEN GODDARD 2,235,557 0.43 14 YANAWE INVESTMENTS PTY LIMITED 2,046,100 0.39 15 AMP LIFE LIMITED 1,998,678 0.38 16 SHARE DIRECT NOMINEES PTY LTD <10026 A/C> 1,442,542 0.28 17 GWYNVILL INVESTMENTS PTY LIMITED 1,330,700 0.26 18 WARBONT NOMINEES PTY LTD 875,092 0.17 19 PAUL ZAHRA 863,926 0.17 20 NAVIGATOR AUSTRALIA LTD 862,553 0.16 226,193,015 43.44

The 20 largest ordinary shareholders hold 43.44% of the ordinary shares of the Company. For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 122 123 shareholder information

As at 28 September 2011 David Jones Limited and its controlled entities

SUBSTANTIAL SHAREHOLDINGS Substantial Shareholder Notices received up to 28 September 2011 Ordinary Extent of Date of Last Shares Interest Notification Ausbil Dexia Limited 31,520,094 6.05% 07.02.11 Matthews International Capital Management, LLC 26,780,739 5.14% 16.08.11 UBS AG and its related bodies corporate 26,335,961 5.06% 14.09.11

CLASS OF SHARES AND VOTING RIGHTS At 28 September 2011 there were 72,478 holders of the ordinary shares of the Company. The voting rights attaching to the ordinary shares set out in clause 5.8 of the Company’s Constitution are on a show of hands, every member present has one vote; and on a poll, every member present has one vote for each fully paid share held by the member and in respect of which the member is entitled to vote.

DIVIDEND SCHEDULE Details of dividends paid on ordinary shares during the current and previous financial year are set out in the Directors’ Report on page 36. For a full up to date schedule of all dividends paid by the Company, since listing in 1995, see the “For Investors” section of the David Jones website.

DISTRIBUTION OF SHAREHOLDERS Holders of Holders of Ordinary Shares Ordinary Shares as at as at Category 28 September 2011 1 October 2010 1 – 1000 13,346 13,035 1,001 – 5,000 47,611 49,732 5,001 – 10,000 7,224 7,035 10,001 – 100,000 4,161 3,863 100,001 and over 136 130 72,478 73,795

Less than a marketable parcel 2,958 1,691 For personal use only use personal For

David Jones Annual Report 2011 David Jones Annual Report 2011 122 123 corporate directory

PRINCIPAL REGISTERED OFFICE 2011 DAVID JONES LIMITED ANNUAL REPORT 86–108 Castlereagh Street, Sydney, NSW 2000 This year’s Annual Report and the Notice of Meeting can be accessed at http://www.davidjones.com.au/For-Investors/ Telephone Presentations-and-Reports-2011. The Annual Report is also (02) 9266 5544 available, free of charge, on request from the Share Registry by calling 1800 652 207. Facsimile Previous years’ Annual Reports, announcements made to (02) 9261 5717 – Corporate ASX during the year and general shareholder information can (02) 9267 3895 – General Retail be accessed on the David Jones website. Upon accessing the David Jones website, click on ‘For Investors’ at the bottom of Telephone number for all Stores the screen to go through to releases and reports. 133 357 SHARE REGISTRY LOCATIONS OF ALL STORES Computershare Investor Services Pty Limited David Jones stores are located in New South Wales, Australian Level 4, 60 Carrington Street, Sydney, NSW 2000 Capital Territory, Victoria, Queensland, South Australia and GPO Box 7045, Sydney, NSW 2001 Western Australia. Details of individual stores are shown in the ‘Stores’ section of the David Jones website. Telephone 1800 652 207 – Toll Free WEBSITE www.davidjones.com.au Facsimile (02) 8235 8150 COMPANY SECRETARY Caroline Waldron LLB (Hons) ACIS Share Registry Website www.computershare.com Shareholders can access information and services relevant to their holding, including dividend payment history details, from the David Jones website under “For Investors”. Anyone can visit the Share Registry website to access a range of information about David Jones including the closing price of David Jones shares, graphs showing market prices over a requested period and graphs showing volumes traded over a requested period. Shareholders can register their email address through the Share Registry website to receive shareholder communications electronically.

STOCK EXCHANGE David Jones Limited is listed on the ASX.

The Home Exchange is Sydney. For personal use only use personal For

David Jones Annual Report 2011 124 For personal use only use personal For

PEFC/xx-xx-xx Promoting Sustainable

PRODUCTION SPATCHURST.COM.AU BY Forest Management David Jones Annual Report 2011 124 29/09/11 6:08 PM DAVID JONES LIMITED ABN 75 000 074 573 ACN 000 074 573 JONES LIMITED ABN 75 000 074 573 ACN DAVID 201120112011201120112011201120112011 ANNUAL REPORT

DAVID JONES ANNUAL REPORT 2011

For Corporate and Customer information please visit us at davidjones.com.au For For personal use only use personal For DJ0813 Annual Report-R.indd 1