Stage Stores Inc.
Annual Report 2013

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Morningstar® Document Research℠ FORM 10-KSTAGE STORES INC - SSIFiled: April 02, 2014 (period: February 01, 2014)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549_______________ FORM 10-K (Mark One)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 1, 2014 or¨¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______Commission File No. 1-14035Stage Stores, Inc.(Exact Name of Registrant as Specified in Its Charter)NEVADA(State or Other Jurisdiction of Incorporation or Organization)91-1826900(I.R.S. Employer Identification No.) 10201 MAIN STREET, HOUSTON, TEXAS(Address of Principal Executive Offices)77025(Zip Code)Registrant's telephone number, including area code: (800) 579-2302Securities registered pursuant to Section 12(b) of the Act:Title of each classCommon Stock ($0.01 par value)Name of each exchange on which registeredNew York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes  No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes  No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). Yes  No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 232.405 of this chapter) is not contained herein, and willnot be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K. Yes  No oSource: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.Large accelerated filer  Accelerated filer o Non-accelerated filer o Smaller reporting company oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No As of August 2, 2013 (the last business day of the registrant's most recently completed second quarter), the aggregate market value of the voting and non-voting common stock of the registrant held by non-affiliates of the registrant was $813,562,924 (based upon the closing price of the registrant's commonstock as reported by the New York Stock Exchange on August 2, 2013).As of March 26, 2014, there were 31,571,014 shares of the registrant's common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the definitive proxy statement relating to the registrant's Annual Meeting of Shareholders to be held on June 10, 2014, which will be filed within120 days of the end of the registrant's fiscal year ended February 1, 2014 (the "Proxy Statement"), are incorporated by reference into Part III of this Form 10-Kto the extent described therein.2Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. TABLE OF CONTENTS PART IPage No. Item 1.Business4Item 1A.Risk Factors10Item 1B.Unresolved Staff Comments13Item 2.Properties13Item 3.Legal Proceedings14Item 4.Mine Safety Disclosures14 PART II Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities15Item 6.Selected Financial Data17Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations20Item 7A.Quantitative and Qualitative Disclosures About Market Risk30Item 8.Financial Statements and Supplementary Data30Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure30Item 9A.Controls and Procedures31Item 9B.Other Information31 PART III Item 10.Directors, Executive Officers and Corporate Governance32Item 11.Executive Compensation32Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters33Item 13.Certain Relationships and Related Transactions, and Director Independence33Item 14.Principal Accountant Fees and Services33 PART IV Item 15.Exhibits and Financial Statement Schedules34 Signatures 38 Index to Consolidated Financial Statements of Stage Stores, Inc.F-13Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsReferences to a particular year are to Stage Stores, Inc.'s fiscal year, which is the 52- or 53-week period ending on the Saturday closest to January31st of the following calendar year. For example, a reference to "2011" is a reference to the fiscal year ended January 28, 2012, "2012" is a referenceto the fiscal year ended February 2, 2013 and "2013" is a reference to the fiscal year ended February 1, 2014. 2011 and 2013 consisted of 52 weeks,while 2012 consisted of 53 weeks. PART I ITEM 1. BUSINESSOverviewStage Stores, Inc. (the "Company" or "Stage Stores") is a Houston, Texas-based specialty department store retailer, which operates under the Bealls,Goody's, Palais Royal, Peebles and Stage nameplates. The Company offers moderately priced, nationally recognized brand name and private label apparel,accessories, cosmetics and footwear for the entire family. As of February 1, 2014 the Company also operated an off-price concept under the Steele's nameplate,that was sold on March 7, 2014, as discussed further below. The Company's principal focus is on consumers in small and mid-sized markets which theCompany believes are under-served and less competitive. The Company differentiates itself from the competition in the small and mid-sized communities thatit serves by offering consumers access to brand name merchandise not typically carried by other retailers in the same market area.The Company also offers its merchandise direct-to-consumer through its eCommerce website and Send program. The eCommerce website featuressimilar, but broader, assortments of merchandise as that found in the Company's stores, as well as other products not carried in its stores. The Send programallows customers to have merchandise shipped directly to their homes from another store if their size or color is not available in a local store.The Company was formed in 1988 when the management of Palais Royal, together with several venture capital firms, acquired the family-ownedBealls and Palais Royal chains, both of which were originally founded in the 1920s. At the time of the acquisition, Palais Royal operated primarily largerstores, located in and around the Houston metropolitan area, while Bealls operated primarily smaller stores, principally located in rural Texas towns. Since itsformation, the Company has pursued a growth strategy that is focused on expanding the Company's presence in small markets across the country throughnew store openings and strategic acquisitions.Steele's, an off-price concept, was launched on November 1, 2011. By February 1, 2014, the number of stores had grown to 35. In the first quarterof 2014, the Company made the decision to divest the Steele's stores in order to focus all of its attention on its core department store business. On March 7,2014, the Company completed the sale of its Steele's off-price operations.StoresThe Company operates its stores under the nameplates of Bealls, Goody's, Palais Royal, Peebles and Stage. As of February 1, 2014 the Companyalso operated an off-price concept under the Steele's nameplate, that was sold on March 7, 2014. The store count and selling square footage by nameplate are asfollows: Number of Stores Selling Square Footage (in thousands) February 2, 2013 2013 Activity NetChanges February 1, 2014 February 2, 2013 2013 Activity NetChanges February 1, 2014Bealls212 3 215 4,259 26 4,285Goody's258 11 269 4,204 128 4,332Palais Royal54 (1) 53 1,169 (29) 1,140Peebles184 6 190 3,495 64 3,559Stage122 (1) 121 2,128 (31) 2,097Steele's34 1 35 378 8 386 864 19 883 15,633 166 15,7994Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsUtilizing a ten-mile radius from each store, approximately 66% of the Company's stores are located in small towns and communities withpopulations below 50,000 people, while an additional 20% of the Company's stores are located in mid-sized communities with populations between 50,000 and150,000 people. The remaining 14% of the Company's stores are located in higher-density markets with populations greater than 150,000, such as Houstonand San Antonio, Texas. The store count and selling square footage by market area population are as follows: Number of Stores Selling Square Footage (in thousands) February 2, 2013 2013 Activity NetChanges February 1, 2014 February 2, 2013 2013 Activity NetChanges February 1, 2014Less than 50,000570 13 583 9,203 122 9,32550,000 to 150,000162 11 173 3,325 187 3,512Greater than 150,000132 (5) 127 3,105 (143) 2,962 864 19 883 15,633 166 15,799Store Openings. The cornerstone of the Company's growth strategy continues to be to identify locations in small and mid-sized markets that meetits demographic and competitive criteria. The Company believes that the long-term potential of its smaller markets is positive and wants to be well positionedin these markets with locations that are convenient to its customers. The Company attempts to locate its stores by, or in the vicinity of, other tenants that itbelieves will help attract additional foot traffic to the area, such as grocery stores, drug stores or major discount stores such as Wal-Mart. During 2013, theCompany opened 29 new stores. The Company believes that there are sufficient opportunities in small and mid-sized markets to continue with its new storegrowth into the foreseeable future. In 2014, the Company anticipates opening 20-25 new stores, including testing new stores in higher-density markets.Expansion, Relocation and Remodeling. In addition to opening new stores, the Company has continued to invest in the expansion, relocation andremodeling of its existing stores. The Company believes that remodeling keeps its stores looking fresh and up-to-date, which enhances its customers' shoppingexperience and helps maintain and improve its market share. Store remodeling projects can range from updating and improving in-store lighting, fixtures, wallmerchandising and signage, to more extensive expansion projects. Relocations are intended to improve the store's location and to help it capitalize onincremental sales potential. During 2013, the Company expanded 3 stores, relocated 3 stores and remodeled 11 stores.Store Closures. The Company closed 10 stores during 2013. The Company continually reviews the trend of each store's performance and willclose a store if the expected store performance does not support the required investment of capital at that location.5Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStore Activity. During 2013, the store count activity by state is as follows: February 2,2013 Store Openings Store Closures February 1,2014 Alabama 35 2 (1) 36 Arkansas 24 — (1) 23 Colorado 5 1 — 6 Florida 6 1 — 7 Georgia 36 2 — 38 Illinois 4 2 — 6 Indiana 24 1 (1) 24 Iowa 3 — (1) 2 Louisiana 63 — (1) 62 Michigan 14 1 — 15 Mississippi 24 3 — 27 Missouri 18 1 — 19 Nevada 1 1 — 2 New York 20 1 — 21 North Carolina 28 2 — 30 Ohio 25 2 — 27 Oregon 2 1 — 3 Pennsylvania 29 4 (1) 32 South Carolina 22 — (1) 21 Texas 249 3 (3) 249 West Virginia 10 1 — 11 Other states (1) 222 — — 222 864 29 (10) 883 (1) See Item 2 Properties in this Form 10-K for additional disclosures regarding properties.CompetitionThe retail industry is highly competitive. However, as a result of its small and mid-sized market focus, the Company generally faces lesscompetition for its brand name merchandise since branded merchandise is typically available only in regional malls, which are normally located more than 30miles away. In small and mid-sized markets where the Company does compete for brand name apparel sales, competition generally comes from local retailers,small regional chains and, to a lesser extent, national department stores. The Company believes it has a competitive advantage over local retailers and smallregional chains due to its (i) broader selection of brand name merchandise, (ii) distinctive retail concept, (iii) economies of scale, (iv) strong vendorrelationships and (v) private label credit card program. The Company also believes it has a competitive advantage in small and mid-sized markets overnational department stores due to its experience with smaller markets. In addition, due to minimal merchandise overlap, the Company generally does notdirectly compete for branded apparel sales with national discounters such as Wal-Mart. In the highly competitive metropolitan markets where the Companycompetes against other national department store chains, the Company offers consumers a high level of customer service and the advantage of generally beingin neighborhood locations with convenient parking and easy access. In addition, over the years, the Company has endeavored to nurture customer loyalty andfoster name recognition through loyalty and direct marketing programs.6Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsMerchandisingThe Company's merchandising strategy focuses on matching merchandise assortments and offerings with customers' aspirations for fashionable,quality brand name apparel. Further, care is taken to avoid duplication and to ensure in-stock position on size and color in all merchandise categories. TheCompany offers a well-edited selection of moderately priced, branded merchandise within distinct merchandise categories, such as women's, men's andchildren's apparel, as well as accessories, cosmetics, home and footwear.The following table sets forth the distribution of net sales among the Company's various merchandise categories: Fiscal YearDepartment 2013 2012 2011 Men's/Young Men's 17% 17% 17%Misses Sportswear 16 16 16Footwear 13 13 13Children's 11 12 12Junior Sportswear 9 9 9Cosmetics 9 8 8Accessories 8 8 8Special Sizes 5 6 6Dresses 4 4 4Home & Gifts 4 3 2Intimates 3 3 3Outerwear, Swimwear and Other 1 1 2 100% 100% 100% Merchandise selections range from basics, including denim, underwear and foundations, to more upscale and fashionable clothing offerings.Merchandise mix may also vary from store to store to accommodate differing demographic, regional and climatic characteristics. Approximately 85% of salesconsist of nationally recognized brands such as Levi Strauss, Nike, Calvin Klein, Chaps, Izod, Dockers, Carters, Jockey, Estee Lauder, Clinique, Nautica,Skechers and New Balance, while the remaining 15% of sales consist of the Company's private label merchandise.The Company's private label portfolio includes several brands, which are developed and sourced through its agreements with third party vendors.The Company believes its private label, exclusive and quasi-exclusive brands offer a compelling mix of style, quality and excellent value. In 2013, theCompany reintroduced Ivy Crew as a private brand within Men's. The Company continues to see its private brands as a growth avenue.The Company is also focused on growing its cosmetics business. In 2013, the Company installed 35 Estee Lauder and 37 Clinique counters.Merchandising activities for the Company's department stores are conducted from its corporate headquarters in Houston, Texas. The Companymaintained a separate buying office in New York, New York for its Steele's stores, which was included in the divestiture of Steele's.7Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsMarketing StrategyThe Company's marketing strategy is designed to establish brand loyalty and convenience and to support each store's position as the localdestination for basic and fashionable, moderately priced, brand name merchandise. The Company's marketing strategy leverages (i) emerging technology andtrends in retail marketing, (ii) consumer insight from brand and customer research and (iii) identified customer purchase history to plan and execute targetedmulti-channel marketing to its customers. In addition, the Company captures customer point-of-sale data on transactions associated with the private labelcredit card, third party credit cards, debits cards, and checks, as well as data from other affinity programs to incorporate into its marketing andmerchandising programs. Through marketing sponsorship, the Company also encourages individual store-level involvement in local community activities.The Company's primary target customers are women who are generally 35 and older with annual household incomes over $55,000, who, based oncustomer research, are shown to be the primary decision makers for their family's clothing purchases. The Company uses a multi-media advertisingapproach, including broadcast media, online digital media, mobile media, local newspaper inserts and direct mail. In addition, the Company promotes itsprivate label credit card and attempts to create strong customer loyalty through continuous one-on-one communication with its core private label credit cardholders.Direct-to-consumer. The Company also offers its merchandise direct-to-consumer through its eCommerce website and Send program. Sincelaunching its eCommerce website in 2010, the Company has made growing its direct-to-consumer business a high priority. The eCommerce website featuressimilar, but broader, assortments of merchandise as that found in the Company's stores, as well as other products not carried in its stores. The Company alsocompleted a replatforming of its eCommerce website at the beginning of the 2013 fourth quarter, which improved the functionality of the site and enhanced thecustomer experience. The Send program allows customers to have merchandise shipped directly to their homes from another store if their size or color is notavailable in a local store.Private Label Credit Card. The Company considers its private label credit card program to be a vital component of its retailing concept because it(i) enhances customer loyalty, (ii) allows the Company to identify and regularly contact its best customers and (iii) creates a comprehensive database thatenables the Company to implement detailed, segmented marketing and merchandising strategies for each store. In November 2012, the Company launched anew customer loyalty program which provides significantly enhanced benefits and incentives for its private label credit card holders. These include,depending on their level of purchases, reward certificates redeemable for merchandise, free shipping on direct-to-consumer purchases, free gift wrap, specialpromotional discounts and invitations to private sales. In addition, new holders of the Company's credit card receive a 10% or 15% discount the first timethey use their new card. To encourage associates to focus on getting customers to open new Company credit card accounts, the Company provides increasingincentive award payments based on the number of new private label credit card accounts activated. The penetration rate for the Company's private label creditcard was approximately 36%, 33% and 32% of net sales in 2013, 2012 and 2011, respectively.Customer Service Initiatives. A primary corporate objective is to provide exceptional customer service through conveniently located stores staffedwith well-trained and motivated sales associates. In order to ensure consistency of execution, each sales associate is evaluated based on the attainment ofspecific customer service standards, such as offering prompt and knowledgeable assistance, suggesting complementary items, helping customers open privatelabel credit card accounts and establishing consistent contact with customers to facilitate repeat business. The Company also conducts customer satisfactionsurveys to measure and monitor attainment of customer service expectations. The results of customer surveys are frequently discussed with the appropriatesales associates so that excellent service can be recognized and, conversely, counseling can be used if improvements are needed. To further reinforce theCompany's focus on customer service, the Company has various programs in place to recognize associates for providing outstanding customer service. Further, senior management, store operations and merchandising personnel regularly visit the stores to enhance their knowledge of the trade area, storemanagement and customer base. For span-of-control purposes, the Company's stores are divided into distinct regions and districts. The number of stores thateach District Manager oversees depends on their proximity to each other and generally varies from a low of 8 stores to a high of 20 stores. Each store ismanaged by a team consisting of a Manager and a number of Assistant Managers, determined by the size of the store. The selling floor staff within each storeconsists of both full-time and part-time associates, with temporary associates added during peak selling seasons. The Company believes that this structureprovides an appropriate level of oversight, management and control over its store operations.8Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsMerchandise Distribution The Company currently distributes all merchandise to its stores through three distribution centers located in Jacksonville, Texas, South Hill,Virginia and Jeffersonville, Ohio. Incoming merchandise received at the distribution centers is inspected for quality control purposes. The Company hasformal guidelines for vendors with respect to shipping and invoicing for merchandise. Vendors that do not comply with the guidelines are charged specifiedfees depending upon the degree of non-compliance. These fees are intended to be a deterrent to non-compliance, as well as to offset higher costs associated withthe processing of such merchandise.Integrated merchandising and warehouse management systems support all corporate and distribution center locations that support the stores. All ofthe Company's distribution centers are equipped with modern sortation equipment to support distribution of quantities to meet specific store needs. Theconfigurations of the distribution centers permit daily shipments to stores, if needed, with the majority of stores receiving merchandise within two days ofshipment from the distribution centers. The Company utilizes a third party contract carrier to deliver merchandise from the distribution centers to its stores.Information SystemsThe Company supports its retail concepts by using multiple, highly integrated systems in areas such as merchandising, store operations,distribution, sales promotion, personnel management, store design and accounting. The Company's core merchandising systems assist in planning, ordering,allocating and replenishing merchandise assortments for each store, based on specific characteristics and recent sales trends. The price change managementsystem allows the Company to identify and mark down slow moving merchandise. The replenishment/fulfillment system allows the Company to maintainplanned levels of in-stock positions in basic items such as jeans and underwear. In addition, a fully integrated warehouse management system is in place inall three distribution centers.The Company has also installed a markdown optimization tool, which is focused on pricing items on a style-by-style basis at the appropriate price,based on inventory levels and sales history, in order to maximize revenue and profitability. The Company also continues to expand the utilization andeffectiveness of its merchandise planning system in order to maximize the generation of sales and gross margin. In 2014, the Company is implementing storelevel markdown optimization and plans to develop and implement size pack optimization to better tailor assortments on a more localized level.The Company utilizes a point-of-sale ("POS") platform with bar code scanning, electronic credit authorization, instant credit, returns database andgift card processing in all its stores. The POS platform allows the Company to capture customer specific sales data for use in its merchandising, marketingand loss prevention systems, while quickly servicing its customers. The POS platform also manages coupon management and deal-based pricing, whichstreamlines the checkout process and improves store associate adherence to promotional markdown policies.EmployeesAt February 1, 2014, the Company employed approximately 14,700 hourly and salaried employees. Employee levels will vary during the year as theCompany traditionally hires additional employees and increases the hours of part-time employees during peak seasonal selling periods. There are no collectivebargaining agreements in effect with respect to any of the Company's employees. The Company believes that it maintains a good relationship with itsemployees.Seasonality The Company's business is seasonal and sales are traditionally lower during the first three quarters of the fiscal year (February through October) andhigher during the last quarter of the fiscal year (November through January). The fourth quarter usually accounts for slightly more than 30% of theCompany's annual sales, with the other quarters accounting for approximately 22% to 24% each. Working capital requirements fluctuate during the year aswell and generally reach their highest levels during the third and fourth quarters.9Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsTrademarksThe Company regards its trademarks and their protection as important to its success. In addition to the Bealls, Goody's, Palais Royal, Peebles, Stageand Steele’s trademarks, the United States Patent and Trademark Office (the "USPTO") has issued federal registrations to the Company for the followingtrademarks: Baxter & Wells, Cape Classic, Choose To Be You, Goody's 4 Shoes, Goody's Family Clothing, Goody's Family Clothing (and design),goodysonline.com, Graphite, Hannah, Hannah Comfort, H.O.M.E. Helping Our Military and Environment, Ivy Crew, Kid Crew, Mistletoe Mountain,Mountain Lake, Old College Inn, On Stage, Pebblebrook, Private Expressions, Real Style. Real Deals., Rebecca Malone, Signature Studio, Specialty Baby,Specialty Girl, Steele's (Stylized), Sun River Clothing Co., The Big Event, Thomas & Ashemore, Valerie Stevens, Whispers, Wishful Park, and Y.E.S.Your Everyday Savings. The Company has also filed applications with the USPTO seeking federal registrations for the following trademarks: HannahCollection, Jingle Bell Lane, Max & Mini, Max & Mini (design in squares), Max & Mini (silhouette) and Rustic Blue.Available InformationThe Company makes available, free of charge, through its website, among other things, corporate governance documents, its annual reports on Form10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after they have beenelectronically filed with the Securities and Exchange Commission ("SEC"). They can be obtained by accessing the Company's website atwww.stagestoresinc.com and clicking on "Investor Relations." To access corporate governance documents, click "Corporate Governance" and to access SECfilings, click "SEC Filings," then the report to be obtained. Information contained on the Company's website is not part of this Form 10-K.ITEM 1A. RISK FACTORSForward Looking StatementsCertain statements in this Form 10-K contain or may contain forward-looking statements that are subject to known and unknown risks,uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance orachievements expressed or implied, by these forward-looking statements. Forward-looking statements reflect the Company's expectations regarding futureevents and operating performance and often contain words such as "believe," "expect," "may," "will," "should," "could," "anticipate," "plan" or similarwords.Forward-looking statements are based on various assumptions and factors that could cause actual results to differ materially from those in theforward-looking statements. These factors include, but are not limited to, the ability of the Company and its subsidiaries to maintain normal trade terms withvendors, the ability of the Company and its subsidiaries to comply with the various covenant requirements contained in the Company's Revolving CreditFacility, the demand for apparel and other factors. The demand for apparel and sales volume can be affected by significant changes in economic conditions,including an economic downturn, employment levels in the Company's markets, consumer confidence, energy and gasoline prices, and other factorsinfluencing discretionary consumer spending. Other factors affecting the demand for apparel and sales volume include unseasonable and severe weatherpatterns, an increase in the level of competition in the Company's market areas, competitors' marketing strategies, changes in fashion trends, changes in theaverage cost of merchandise purchased for resale, availability of merchandise on normal payment terms and the failure to achieve the expected results of theCompany's merchandising and marketing plans as well as its store opening plans. The occurrence of any of these factors could have a material and adverseimpact on the Company's business, financial condition, operating results or liquidity. Most of these factors are difficult to predict accurately and are generallybeyond the Company's control.Readers should carefully review this Form 10-K in its entirety, including but not limited to the Company's financial statements and theaccompanying notes, and the risks and uncertainties described in this Item 1A. Readers should consider the risks and uncertainties described in anyforward-looking statement contained in this Form 10-K. Forward-looking statements contained in this Form 10-K are made as of the date of this Form 10-K. The Company does not undertake to update its forward-looking statements.Described below are certain risk factors that management believes are applicable to the Company's business and the industry in which it operates. There may also be additional risks that are presently not material or are unknown.An economic downturn or decline in consumer confidence could negatively impact the Company's business and financial condition. TheCompany's results of operations are sensitive to changes in general economic conditions that impact consumer discretionary spending, such as employmentlevels, taxes, energy and gasoline prices and other factors influencing consumer confidence. The Company has extensive operations in the South Central,Southeastern and Mid Atlantic states. In10Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contentsaddition, many stores are located in small towns and rural environments that are substantially dependent upon the local economy. If there is an economicdownturn or decline in consumer confidence, particularly in the South Central, Southeastern and Mid Atlantic states and any state (such as Texas orLouisiana) from which the Company derives a significant portion of its net sales, the Company's business, financial condition and cash flows will benegatively impacted and such impact could be material.There can be no assurance that the Company's liquidity will not be affected by changes in economic conditions. Recent economic conditionshave not had, nor does the Company anticipate that current economic conditions will have, a significant impact on its liquidity. Due to the Company'ssignificant operating cash flow and availability under its Revolving Credit Facility, the Company continues to believe that it has the ability to meet itsfinancing needs for the foreseeable future. However, there can be no assurance that the Company's liquidity will not be materially and adversely affected bychanges in economic conditions.The Company faces the risk of significant competition in the retail apparel industry which could result in the loss of customers andadversely affect revenues. The retail apparel business is highly competitive. Although competition varies widely from market to market, the Companyfaces the risk of increased competition, particularly in its more highly populated markets from national, regional and local department and specialty stores. Some of its competitors are considerably larger than the Company and have substantially greater resources. Although the Company offers a unique productmix and brands that are not available at certain other retailers, including regional and national department stores, there is no assurance that the Company'sexisting or new competitors will not carry similar branded merchandise in the future. This could have a material and adverse effect on the Company'sbusiness, financial condition and cash flows. In addition to traditional store-based retailers, the Company also faces competition from the Internet business,which could materially affect its revenues and profitability.The Company's failure to anticipate and respond to changing customer preferences in a timely manner could adversely affect itsoperations. The Company's success depends, in part, upon its ability to anticipate and respond to changing consumer preferences and fashion trends in atimely manner. The Company attempts to stay abreast of emerging lifestyles and consumer preferences affecting its merchandise. However, any sustainedfailure on the Company's part to identify and respond to such trends could have a material and adverse effect on the Company's business, financial conditionand cash flows.The Company is highly dependent upon cash flows and net earnings generated during the fourth quarter, which includes the holidayseason. The Company's business is seasonal and sales are traditionally lower during the first three quarters of the fiscal year (February through October) andhigher during the last quarter of the fiscal year (November through January). The fourth quarter usually accounts for slightly more than 30% of theCompany's annual sales, with the other quarters accounting for approximately 22% to 24% each. Working capital requirements fluctuate during the year aswell and generally reach their highest levels during the third and fourth quarters.Unusual weather patterns or natural disasters, whether due to climate change or otherwise, could negatively impact the Company'sfinancial condition. The Company's business depends, in part, on normal weather patterns across the Company's markets. The Company is susceptible tounseasonable and severe weather conditions, including natural disasters, such as hurricanes and tornadoes in its markets. Any such unusual or prolongedweather patterns in the Company's markets, especially in states such as Texas and Louisiana, whether due to climate change or otherwise, could have amaterial and adverse impact on its business, financial condition and cash flows. In addition, the Company's business, financial condition and cash flowcould be adversely affected if the businesses of our key vendors and their merchandise manufacturers, shippers, carriers and other merchandisetransportation service providers, especially those outside the United States, are disrupted due to severe weather, such as, but not limited to, hurricanes,tornadoes or floods, whether due to climate change or otherwise.War, acts of terrorism, Mexican border violence, public health issues and natural disasters may create uncertainty and could result inreduced revenues. The Company cannot predict, with any degree of certainty, what effect, if any, war, acts of terrorism, Mexican border violence, publichealth issues and natural disasters, if any, will have on the Company, its operations, the other risk factors discussed herein and the forward-lookingstatements made by the Company in this Form 10-K. However, the consequences of these events could have a material and adverse effect on the Company'sbusiness, financial condition and cash flows.Government laws and regulations could adversely impact the Company's business, financial condition and cash flows. The Company,like other businesses, is subject to various federal, state and local government laws and regulations including, but not limited to, tax laws. These may changeperiodically in response to economic or political conditions. The Company cannot predict whether existing laws or regulations, as currently interpreted or asreinterpreted in the future, or future laws and regulations, could materially and adversely affect the results of its operations, financial condition and cashflows.The Company's failure in the pursuit or execution of new acquisitions or strategic expansion could adversely affect its business. Thesuccess of the Company's expansion strategy depends upon many factors, including its ability to obtain suitable11Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contentssites for new stores at acceptable costs, to hire, train and retain qualified personnel and to integrate new stores into existing information systems andoperations. The Company cannot guarantee that it will reach its targets for opening new stores or that such stores, including those opened through acquisition,will operate profitably when opened. Failure to effectively implement its expansion strategy could have a material and adverse effect on its business, financialcondition and cash flows.The Company's failure to obtain merchandise product on normal trade terms and/or its inability to pass on any price increases relatedto its merchandise could adversely impact its business, financial condition and cash flows. The Company is highly dependent on obtainingmerchandise product on normal trade terms. Failure to meet its performance objectives could cause key vendors and factors to become more restrictive ingranting trade credit. The tightening of credit, such as a reduction in the Company's lines of credit or payment terms from the vendor or factor community,could have a material adverse impact on the Company's business, financial condition and cash flows. The Company is also highly dependent on obtainingmerchandise at competitive and predictable prices. In the event the Company experiences rising prices related to its merchandise, whether due to cost ofmaterials, inflation, transportation costs, or otherwise, and it is unable pass on those rising prices to its customers, its business, financial condition and cashflows could be adversely and materially affected.A catastrophic event adversely affecting any of the Company's buying, distribution or other corporate facilities could result in reducedrevenues and loss of customers. The Company's buying, distribution and other corporate operations are in highly centralized locations. The Company'soperations could be materially and adversely affected if a catastrophic event (such as, but not limited to, fire, hurricanes, tornadoes or floods) impacts the useof these facilities. While the Company has developed contingency plans that would be implemented in the event of a catastrophic event, there are noassurances that the Company would be successful in obtaining alternative servicing facilities in a timely manner in the event of such a catastrophe.A disruption of the Company's information technology systems could have a material adverse impact on its business and financialcondition. The Company is heavily dependent on its information technology systems for day to day business operations. In addition, as part of theCompany's normal course of business, it collects, processes and retains sensitive and confidential customer information. Today's information technologyrisks are largely external and their consequences could affect the entire Company. Potential risks include, but are not limited to, the following: (i) an intrusionby a hacker, (ii) the introduction of malware (virus, Trojan, spyware), (iii) hardware failure, (iv) outages due to software defects and (v) human error. Although the Company runs anti-virus and anti-spyware software and takes other steps to ensure that its information technology systems will not be disabledor otherwise disrupted, there are no assurances that disruptions will not occur. The consequences of a disruption, depending on the severity, could have amaterial adverse effect on the Company's business and financial condition and could expose the Company to civil, regulatory and industry actions andpossible judgments, fees and fines.A security breach that results in unauthorized disclosure of the Company, employee or customer information could adversely impact theCompany's business, reputation and financial condition. The protection of customer, employee, and company data is critical to the Company. Anysecurity breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer, employee or company information couldseverely damage the Company's reputation, expose it to the risks of legal proceedings, disrupt its operations, attract a substantial amount of media, damageour customer relationships, and otherwise adversely affect the Company's business and financial condition. While the Company has taken significant steps toprotect confidential information, there is no assurance that advances in computer capabilities, new discoveries in the field of cryptography, or otherdevelopments will prevent the compromise of customer transaction processing capabilities and personal data. If any such compromise of the Company'sinformation security were to occur, it could have a material adverse effect on the Company's reputation, business, operating results, financial condition andcash flows.The Company's failure to successfully operate its eCommerce website or fulfill customer expectations could adversely impact theCompany's business and sales. The Company's eCommerce platform provides another channel to generate sales. The Company believes that the websitewill drive incremental sales, provide existing customers the on-line shopping experience and also provide the opportunity to introduce the Company to a newcustomer base. If the Company does not successfully meet the challenges of operating a website or fulfilling customer expectations, the Company's businessand sales could be adversely affected.Covenants in the Company's Revolving Credit Facility agreement may impose operating restrictions, impede or adversely affect theCompany's ability to pay dividends or repurchase common shares and raise capital through the sale of stock and other securities. TheCompany's Revolving Credit Facility agreement contains covenants which, among other things, restrict (i) the amount of additional debt or capital leaseobligations, (ii) the payment of dividends and repurchase of common stock under certain circumstances and (iii) related party transactions. In addition, anymaterial or adverse developments affecting the Company's business could significantly limit its ability to meet its obligations as they become due or to complywith the various covenant requirements contained in the Company's Revolving Credit Facility agreement.12Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsThe inability or unwillingness of one or more lenders to fund their commitment under the Company's Revolving Credit Facility couldhave a material adverse impact on the Company's business and financial condition. The Company's Revolving Credit Facility, which matures onJune 30, 2016, is a $250.0 million senior secured revolving credit facility that includes an uncommitted accordion feature to increase the size of the facility to$350.0 million. The Revolving Credit Facility is used by the Company to provide financing for working capital, capital expenditures, interest payments andother general corporate purposes, as well as to support its outstanding letters of credit requirements. The lenders under the Revolving Credit Facility are asfollows: Bank of America, N.A., Wells Fargo Bank, National Association, JPMorgan Chase Bank, N.A. and Regions Bank (collectively, the "Lenders"). Notwithstanding that the Company may be in full compliance with all covenants contained in the Revolving Credit Facility, the inability or unwillingness ofone or more of those lenders to fund their commitment under the Company's Revolving Credit Facility could have a material adverse impact on the Company'sbusiness and financial condition unless the Lenders or another lender covered any shortfall.If the Company's trademarks are successfully challenged, the outcome of those disputes could require the Company to abandon one ormore of its trademarks. The Company regards its trademarks and their protection as important to its success. However, the Company cannot be sure thatany trademark held by it will give it a competitive advantage or will not be challenged by third parties. Although the Company intends to vigorously protect itstrademarks, the cost of litigation to uphold the validity and prevent infringement of trademarks can be substantial and the outcome of those disputes couldrequire the Company to abandon one or more of its trademarks.Risks associated with the Company's carriers, shippers and other providers of merchandise transportation services could have amaterial adverse effect on its business and financial condition. The Company's vendors rely on shippers, carriers and other merchandise transportationservice providers (collectively "Transportation Providers") to deliver merchandise from their manufacturers, both in the United States and abroad, to thevendors' distribution centers in the United States. Transportation Providers are also responsible for transporting merchandise from their vendors' distributioncenters to the Company's distribution centers. The Company also relies on Transportation Providers to transport merchandise from its distribution centers toits stores and to its customers in the case of eCommerce sales. However, if work slowdowns, stoppages, weather or other disruptions affect the transportationof merchandise between the vendors and their manufacturers, especially those manufacturers outside the United States, between the vendors and theCompany, or between the Company and its eCommerce customers, the Company's business, financial condition and cash flows could be adversely affected.Risks associated with the Company's vendors from whom its products are sourced could have a material adverse effect on its businessand financial condition. The Company's merchandise is sourced from a variety of domestic and international vendors. All of the Company's vendors mustcomply with applicable laws, including the Company's required standards of conduct. Political or financial instability, trade restrictions, tariffs, currencyexchange rates, transport capacity and costs and other factors relating to foreign trade, the ability to access suitable merchandise on acceptable terms and thefinancial viability of its vendors are beyond the Company's control and could adversely impact its performance.The Company's failure to attract, develop and retain qualified employees could deteriorate the results of its operations. The Company'sperformance is dependent on attracting and retaining a large and growing number of employees. The Company believes that its competitive advantage isproviding well-trained and motivated sales associates in order to provide customers exceptional customer service. The Company's success depends in partupon its ability to attract, develop and retain a sufficient number of qualified associates, including store, service and administrative personnel.ITEM 1B. UNRESOLVED STAFF COMMENTSNot applicable.ITEM 2. PROPERTIESThe Company's corporate headquarters and merchandising offices are located in a leased 130,000 square-foot building in Houston, Texas. TheSteele's administrative and merchandising offices are located in a leased 3,000 square-foot suite in New York, New York.The Company owns its distribution centers in Jacksonville, Texas and South Hill, Virginia, and leases its third distribution center in Jeffersonville,Ohio. The Company's Jacksonville distribution center has approximately 437,000 square feet of processing area and is capable of servicing 600 stores, theSouth Hill distribution center has approximately 162,000 square feet of processing area and is capable of servicing 240 stores, and the Jeffersonvilledistribution center has approximately 202,000 square feet of processing area and is capable of servicing 310 stores. The Company also leases a 176,000square foot facility in Jacksonville, TX to support the 35 store Steele’s operation and provide capacity expansion for its growing eCommerce business.13Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsThe Company also owns a 28,000 square-foot office building located in South Hill, Virginia. This office building is no longer used and is currentlyheld for sale.The Company's stores, of which all but 4 are leased, are primarily located in strip shopping centers. The majority of leases, which are typically fora 10-year term and often with 2 renewals of five years each, provide for a base rent plus payments for expenses incurred by the landlord, such as commonarea maintenance and insurance. Certain leases provide for contingent rents that are not measurable at inception. These contingent rents are primarily basedon a percentage of sales that are in excess of a predetermined level. Stores range in size from approximately 5,000 to 54,000 selling square feet, with the averagebeing approximately 18,000 selling square feet. At February 1, 2014, the Company operated 883 stores, located in 40 states within 7 regions, as follows: Number of Stores Number of StoresSouth Central Region Midwestern Region Arkansas 23 Illinois 6Louisiana 62 Indiana 24Oklahoma 41 Iowa 2Texas 249 Kansas 11 375 Michigan 15Mid Atlantic Region Minnesota 2Delaware 3 Missouri 19Kentucky 32 Wisconsin 4Maryland 8 83New Jersey 5 Northeastern Region Ohio 27 Connecticut 2Pennsylvania 32 Massachusetts 2Virginia 35 New Hampshire 2West Virginia 11 New York 21 153 Vermont 4Southeastern Region 31Alabama 36 Northwestern Region Florida 7 Idaho 4Georgia 38 Oregon 3Mississippi 27 Wyoming 1North Carolina 30 8South Carolina 21 Total Stores 883Tennessee 35 194 Southwestern Region Arizona 9 Colorado 6 Nevada 2 New Mexico 19 Utah 3 39 ITEM 3. LEGAL PROCEEDINGSFrom time to time, the Company and its subsidiaries are involved in various legal proceedings arising in the ordinary course of their business. Management does not believe that any pending legal proceedings, either individually or in the aggregate, are material to the financial condition, results ofoperations or cash flows of the Company or its subsidiaries.ITEM 4. MINE SAFETY DISCLOSURESNot applicable.14Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsPART IIITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIESMarket and Dividend InformationThe Company's stock trades on the New York Stock Exchange under the symbol "SSI." The following table sets forth the high and low marketprices per share of the Company's common stock as reported by the New York Stock Exchange and the amount of cash dividends per common share paid bythe Company for each quarter in 2013 and 2012: Fiscal Year 2013 2012 High Low Dividend High Low Dividend1st Quarter$29.59 $22.65 $0.100 $17.12 $13.29 $0.092nd Quarter28.50 21.53 0.125 19.10 14.37 0.093rd Quarter25.31 18.41 0.125 24.73 18.74 0.104th Quarter22.99 19.35 0.125 27.42 20.85 0.10 On April 8, 2013, the Company announced that its Board of Directors ("the Board") approved a 25% increase in the Company's quarterly cashdividend rate to 12.5 cents per share from the previous quarterly rate of 10 cents per share. The new quarterly rate of 12.5 cents per share is applicable todividends declared by the Board after May 23, 2013.The Company paid aggregate cash dividends in 2013 and 2012 of $15.5 million and $12.0 million, respectively. While the Company expects tocontinue payment of quarterly cash dividends, the declaration and payment of future dividends by the Company are subject to the discretion of the Board.Any future determination to pay dividends will depend on the Company's results of operations and financial condition, as well as meeting certain criteriaunder its Revolving Credit Facility (as defined in "Liquidity and Capital Resources") and other factors deemed relevant by the Board.HoldersAs of March 26, 2014 there were approximately 277 holders of record of the Company's common stock.15Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsPerformance GraphThe annual changes for the five-year period shown in the following graph are based on the assumption that $100 had been invested in Stage Storesstock, the S&P 500 Index and the S&P 500 Retail Index on January 30, 2009 (the last trading date of fiscal 2008), and that all quarterly dividends werereinvested at the average of the closing prices at the beginning and end of the quarter. The total cumulative dollar returns shown on the graph represent thevalue that such investments would have had on January 31, 2014 (the last trading date of fiscal 2013). The calculations exclude trading commissions andtaxes.DateStage Stores, Inc.S&P 500 IndexS&P 500 Retail Index1/30/2009$100.00$100.00$100.001/29/2010183.86130.03152.951/28/2011227.92154.54191.891/27/2012233.52159.39214.722/1/2013346.13183.22269.461/31/2014301.55215.84333.86 16Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStock Repurchase ProgramOn March 7, 2011, the Board of Directors (the "Board") approved a Stock Repurchase Program (the "2011 Stock Repurchase Program") whichauthorized the Company to repurchase up to $200 million of its outstanding common stock. The 2011 Stock Repurchase Program will expire when theCompany has repurchased $200 million of its outstanding common stock, unless terminated earlier by the Board. Through June 10, 2012, the Companyrepurchased approximately $100.1 million of its outstanding common stock under the 2011 Stock Repurchase Program. On June 11, 2012, the Companyannounced that its Board had chosen not to spend additional capital under the 2011 Stock Repurchase Program for the time being. In addition, the Boardauthorized the Company to repurchase shares of its outstanding common stock equal to the amount of proceeds and related tax benefits from the exercise ofstock options, SARs and other equity grants. Purchases of shares of the Company's common stock may be made from time to time, either on the open marketor through privately negotiated transactions and are financed by the Company's existing cash, cash flow and other liquidity sources, as appropriate. The table below sets forth information regarding the Company's repurchases of its common stock during the 2013 fourth quarter: ISSUER PURCHASES OF EQUITY SECURITIESPeriod Total Number ofShares Purchased(1) Average Price Paid PerShare (1) Total Number of SharesPurchased as Part ofPublicly AnnouncedPlans or Programs Approximate DollarValue of Shares thatMay Yet Be PurchasedUnder the Plans orPrograms (2) November 3, 2013 to November 30, 2013 1,437 $21.12 — $99,938,428 December 1, 2013 to January 4, 2014 831 21.56 — 99,938,428 January 5, 2014 to February 1, 2014 3,853 20.90 — 99,938,428 Total 6,121 $21.04 — (1)Although the Company did not repurchase any of its common stock during the 2013 fourth quarter under the 2011 Stock Repurchase Program:•The Company reacquired 4,499 shares of common stock from certain employees to cover tax withholding obligations from exercises ofStock Appreciation Rights and the vesting of restricted stock at a weighted average acquisition price of $21.02 per share; and•The trustee of the grantor trust established by the Company for the purpose of holding assets under the Company's DeferredCompensation Plan (the "Plan") purchased an aggregate of 1,622 shares of the Company's common stock in the open market at aweighted average price of $21.10 in connection with the Company Stock Investment Option under the Plan and in connection with thereinvestment of dividends paid on the Company's common stock held in trust in the Plan(2)Reflects the Company's initial $200 million portion of the 2011 Stock Purchase Program, less the $100.1 million purchased using the Company'sexisting cash and cash flow since March 2011.ITEM 6. SELECTED FINANCIAL DATAThe following sets forth selected consolidated financial data for the periods indicated. Financial results for fiscal years 2013, 2011, 2010, and 2009are based on a 52-week period. Financial results for fiscal year 2012 are based on a 53-week period. The selected consolidated financial data should be read inconjunction with the Company's Consolidated Financial Statements included herein. All amounts are stated in thousands, except for per share data,percentages and number of stores.17Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents Fiscal Year 2013 2012 2011 2010 2009Statement of operations data: Net sales$1,633,556 $1,645,800 $1,511,919 $1,470,590 $1,431,927Cost of sales and related buying, occupancy and distribution expenses1,202,754 1,186,025 1,101,319 1,053,766 1,040,120 Gross profit430,802 459,775 410,600 416,824 391,807Selling, general and administrative expenses398,294 392,727 353,834 350,865 338,551Store opening costs2,959 3,657 5,670 3,192 3,041Interest expense, net2,744 3,011 3,821 3,875 4,388 Income before income tax26,805 60,380 47,275 58,892 45,827Income tax expense10,163 22,201 16,315 21,252 17,106 Net income$16,642 $38,179 $30,960 $37,640 $28,721 Adjusted net income (non-GAAP) (1)$39,986 $46,295 $32,085 $37,640 $28,721 Basic earnings per common share$0.51 $1.20 $0.93 $1.00 $0.76Basic weighted average common shares outstanding32,034 31,278 33,021 37,656 38,029 Diluted earnings per common share$0.51 $1.19 $0.92 $0.99 $0.75 Adjusted diluted earnings per common share (1)1.22 1.44 0.95 0.99 0.75Diluted weighted average common shares outstanding32,311 31,600 33,278 38,010 38,413 Margin and other data: Gross profit margin26.4 % 27.9% 27.2% 28.3% 27.4 %Selling, general and administrative expense rate24.4 % 23.9% 23.4% 23.9% 23.6 %Capital expenditures$61,263 $49,489 $45,731 $36,990 $42,707Construction allowances from landlords4,162 4,193 4,499 5,476 3,875Stock repurchases33,748 387 110,919 31,976 1,327Cash dividends per share0.48 0.38 0.33 0.25 0.20 Store data: Comparable store sales growth (decline) (2)(1.5)% 5.7% 0.5% 0.2% (7.9)%Store openings29 56 37 33 28Store closings10 5 10 5 9Number of stores open at end of period883 864 813 786 758Total selling area square footage at end of period15,799 15,633 15,063 14,681 14,077 February 1, February 2, January 28, January 29, January 30, 2014 2013 2012 2011 2010Balance sheet data: Working capital$293,995 $259,260 $213,700 $262,100 $244,153Total assets810,837 794,871 735,339 796,084 800,431Debt obligations63,225 12,329 49,503 38,492 51,218Stockholders' equity454,444 464,870 412,706 489,509 476,046(1)See Non-GAAP Financial Measures following below for additional information and reconciliation to the most directly comparable U.S. GAAPfinancial measure.18Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents(2)The Company follows the retail reporting calendar, which included an extra week of sales in the fourth quarter of 2012. However, many retailersreport comparable store sales on a shifted calendar, which excludes the first week of the 2012 fiscal year rather than the fifty-third week. On thisshifted basis, comparable store sales decreased 1.1% for 2013.Non-GAAP Financial MeasuresThe following supplemental information presents the results of operations for 2013, 2012 and 2011 on a basis in conformity with accountingprinciples generally accepted in the United States of America ("U.S. GAAP") and on a non-U.S. GAAP basis to show earnings with and without chargesassociated with the South Hill Consolidation, the Steele's results of operations and the former Chief Executive Officer's resignation. Management believes thissupplemental financial information enhances an investor's understanding of the Company's financial performance as it excludes those items which impactcomparability of operating trends. The non-U.S. GAAP financial information should not be considered in isolation or viewed as a substitute for net income,cash flow from operations or other measures of performance as defined by U.S. GAAP. Moreover, the inclusion of non-U.S. GAAP financial information asused herein is not necessarily comparable to other similarly titled measures of other companies due to the potential inconsistencies in the method of presentationand items considered. The following tables set forth the supplemental financial information and the reconciliation of U.S. GAAP disclosures to non-U.S.GAAP financial metrics (in thousands, except diluted earnings per share): Fiscal Year 2013 2012 2011Net income On a U.S. GAAP basis$16,642 $38,179 $30,960South Hill Consolidation related charges, net of tax of $9,019 and$1,330, respectively14,770 2,288 —Steele's impairment charge, net of tax of $2,7724,538 — —Steele's operating results, net of tax of $2,465, $2,173 and $593,respectively4,036 3,736 1,125Former Chief Executive Officer resignation related charges, net of taxof $1,216— 2,092 —On a non-U.S. GAAP basis$39,986 $46,295 $32,085 Diluted earnings per share: On a U.S. GAAP basis$0.51 $1.19 $0.92South Hill Consolidation related charges0.45 0.07 —Steele's impairment charge0.14 — —Steele's operating results0.12 0.12 0.03Former Chief Executive Officer resignation related charges— 0.07 —On a non-U.S. GAAP basis$1.22 $1.44(1)$0.95(1) EPS does not foot due to rounding.19Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe results of operations for fiscal years 2013 and 2011 are based on 52-week periods and for fiscal year 2012 is based on a 53-weekperiod.Executive SummaryStage Stores, Inc. (the "Company" or "Stage Stores") is a Houston, Texas-based specialty department store retailer, which operates under the Bealls,Goody's, Palais Royal, Peebles and Stage nameplates. The Company offers moderately priced, nationally recognized brand name and private label apparel,accessories, cosmetics and footwear for the entire family. As of February 1, 2014 the Company also operated an off-price concept under the Steele's nameplate,that was sold on March 7, 2014. The Company also offers its merchandise direct-to-consumer through its eCommerce website and Send program. TheeCommerce website features similar merchandise to that found in the Company's stores as well as merchandise which is available only on-line. The Sendprogram allows customers to have merchandise shipped directly to their homes from another store if their size or color is not available in a local store.The Company's principal focus is on consumers in small and mid-sized markets which the Company believes are under-served and lesscompetitive. In those small town markets where it operates a department store and an off-price store, the Company targets a different customer for each storeand, therefore, believes that customer overlap between the two formats is minimal. As of February 1, 2014, the Company operated 883 stores located in 40states, including 35 Steele's stores.Fiscal 2013The Company made progress on a number of its key initiatives during the 2013 fiscal year. The Company completed the consolidation of its SouthHill operations (the "South Hill Consolidation"), which was announced on February 11, 2013. The South Hill Consolidation is expected to increaseproductivity, create synergies, strengthen collaboration, enhance the Company's purchasing power, provide for a consistent message to customers andaccelerate sales growth. The consolidation is also expected to result in annual savings of approximately $5 million. In addition, as part of ongoing efforts tobecome more productive and improve profitability, the Company implemented an expense reduction program in early November. These cost cutting measures,which included the elimination of approximately 50 corporate positions, are expected to yield an additional annual savings of approximately $5 million.Growing the cosmetics line of business through the installation of additional Estee Lauder and Clinique counters, opening new stores and expandingexisting stores, improving the appearance of its stores and enhancing the eCommerce shopping experience through increased product selections andinvestments in technology continue to be among the Company's top priorities. During 2013, the Company installed 35 new Estee Lauder and 37 new Cliniquecounters. New prototype fixture packages were rolled out to some of the Company's largest department stores in 2013, outfitting more than 80 departmentstores. In addition, the Company opened 28 new department stores and one Steele's store during 2013.Since launching its eCommerce website in 2010, the Company has made growing its Direct-to-Consumer business a high priority. Direct-to-Consumer sales were $30.0 million in 2013, compared to $23.0 million in 2012. The Company completed the replatforming of its eCommerce website at thebeginning of the fourth quarter of 2013 in time for the holiday season, which contributed to a 31% increase in direct-to-consumer sales in 2013.In early November 2012, the Company launched a new customer loyalty program, which provides significantly enhanced benefits and incentivesexclusively for its private label credit card holders. The launch was accompanied by the issuance of new credit cards to more than two million customers. TheCompany's goal in taking these actions was to increase both sales and the penetration rate for its private label credit card. The penetration rate for its privatelabel credit card increased by 290 basis points in 2013.20Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsFiscal 2014 Outlook and TrendsThe Company's strategy in 2014 will be focused on building on its 2013 achievements and pursuing further growth in sales, operating margin andearnings. In 2014, the Company plans to exploit opportunities in areas such as new store growth, merchandising, marketing, seasonal events, direct-to-consumer, the in-store experience, particularly visual merchandising, and information systems. The Company plans on opening, expanding or relocating 40to 50 stores, introducing additional high profile brands, rolling out more cosmetic counters, and leveraging its eCommerce platform to accelerate the growth ofthe direct-to-consumer business. Additionally, the Company will continue its commitment to providing superior customer service and compelling merchandiseassortments within existing product categories in an effort to grow the Company's share of business with its core customers and improve the in-store shoppingexperience while continuing to maintain strong control over inventories and expenses.In the first quarter of 2014, the Company made the decision to divest the Steele's stores in order to focus all of its attention on its core departmentstore business. On March 7, 2014, the Company completed the sale of its Steele's off-price operations.The financial information, discussion and analysis that follow should be read in conjunction with the Company's Consolidated FinancialStatements included elsewhere herein.Results of OperationsThe results of operations for fiscal years 2013 and 2011 are based on 52-week periods and fiscal year 2012 is based on a 53-week period.The following table sets forth the results of operations as a percent of sales for the periods indicated: Fiscal Year (1) 2013 2012 2011Net sales100.0% 100.0% 100.0%Cost of sales and related buying, occupancy and distribution expenses73.6 72.1 72.8 Gross profit26.4 27.9 27.2Selling, general and administrative expenses24.4 23.9 23.4Store opening costs0.2 0.2 0.4Interest expense, net0.2 0.2 0.3 Income before income tax1.6 3.7 3.1Income tax expense0.6 1.3 1.1 Net income1.0% 2.3% 2.0%(1) Percentages may not foot due to rounding. 2013 Compared to 2012Sales for 2013 decreased 0.7% to $1,633.6 million from $1,645.8 million for 2012. Periods of unseasonable and severe weather, an intensepromotional environment and weakness in the overall apparel market negatively impacted sales in 2013 compared to 2012. Comparable store sales, which aresales in stores that are open for at least 14 full months prior to the reporting period, including eCommerce sales, decreased by 1.5% in 2013. However, manyretailers report comparable store sales on a shifted calendar, which excludes the first week of 2012 rather than the fifty-third week. On this shifted basis,comparable store sales for 2013 decreased 1.1%. This compares to a 5.7% increase in comparable store sales in 2012. Excluding eCommerce sales,comparable store sales decreased 2.0% in 2013 as compared to a 5.2% increase in 2012. The 1.5% decrease in comparable store sales for 2013 reflects acombination of a 1.3% increase in the number of transactions, a decrease of 3.3% in average unit retail and an increase of 0.3% in units per transaction.21Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents Comparable store sales increase (decrease) by quarter is presented below: Fiscal Year 2013 20121st Quarter0.7 % 2.5%2nd Quarter1.7 5.43rd Quarter(4.6) 8.14th Quarter(3.4) 6.6Total Year(1.5)%5.7 On a merchandise category basis, cosmetics, footwear, home and gifts, men's, women's sportswear, and children's all outperformed the Company'scomparable store sales average. Cosmetics had the strongest comparable store sales increases, driven by the installation of additional Estee Lauder andClinique counters, as 35 new Estee Lauder and 37 new Clinique counters were opened during 2013. Footwear was driven by sales of key brands such asSperry, Nike, and Skechers. Home and gifts benefited from new product launches such as Keurig and Cuisinart. The Company also continues to focus onsales growth through the introduction of new product offerings and the expansion of existing sought-after brand names.On a market population basis, utilizing a ten-mile radius from each store, the larger market stores outperformed the smaller markets. TheCompany's higher-density markets (populations greater than 150,000) had a comparable store sales increase of 0.5%, while the mid-sized (populations of50,000 to 150,000) and smaller market stores (populations less than 50,000) experienced a comparable store sales decrease of 0.9% and 2.7%, respectively.Geographically, the South Central, Southwest, and Northwest regions performed better than Company average. The Company has also benefited fromadditional market share gains in the rural markets where it competes directly with J.C. Penney stores.The following is a summary of the changes in the components of cost of sales between 2013 and 2012, expressed as a percent of sales: Increase in the ComponentsofCost of SalesMerchandise cost of sales rate0.9%Buying, occupancy and distribution expenses rate0.6Cost of sales rate1.5%Gross profit in 2013 was $430.8 million, a decrease of 6.3% from $459.8 million in 2012. Gross profit, as a percent of sales, decreased to 26.4%in 2013 from 27.9% in 2012. The 1.5% decline in the gross profit rate reflects a 0.9% increase in the merchandise cost of sales rate and a 0.6% increase in thebuying, occupancy and distribution expenses rate. Merchandise cost of sales for 2013 includes approximately $12.5 million, or approximately 0.8% of sales,related to the South Hill Consolidation due to inventory liquidation costs associated with discontinued vendors and merchandise and advertising allowancesdeferred in inventory. The increase in buying, occupancy and distribution expenses rate is a result of higher store occupancy costs and deleveraging fromlower sales in 2013 compared to 2012. Buying, occupancy and distribution expenses also include $7.3 million of impairment charges related to Steele's in2013.Selling, general and administrative ("SG&A") expenses in 2013 increased $5.6 million to $398.3 million from $392.7 million in 2012. As apercent of sales, SG&A expenses increased to 24.4% in 2013 from 23.9% in 2012. The increase in SG&A expenses reflects charges of approximately $11.3million incurred in 2013 related to the South Hill Consolidation, while 2012 included $3.3 million of charges associated with the resignation of the Company'sformer Chief Executive Officer and $1.1 million associated with the South Hill Consolidation. In addition, the increase in 2013 also reflects incremental coststo operate 19 net additional stores and higher medical insurance costs resulting from several large claims as compared to 2012. These higher costs werepartially offset by higher credit income associated with the Company's private label credit card portfolio and lower incentive compensation costs. 22Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStore opening costs in 2013 were $3.0 million, which included costs related to the opening of 29 new stores and the relocation of 3 stores. In 2012,the Company incurred $3.7 million, which included costs related to the opening of 56 new stores and the relocation of 6 stores. Store opening costs areexpensed as incurred and include costs of stores opening in future quarters.Net interest expense was $2.7 million in 2013 and $3.0 million in 2012. Interest expense is primarily comprised of interest on borrowings under theRevolving Credit Facility (see "Liquidity and Capital Resources"), related letters of credit and commitment fees, amortization of debt issuance costs, intereston finance lease obligations and equipment financing notes. The decrease in interest expense is primarily due to the reduced amount of long-term debtobligations, as the Company paid off its equipment financing notes in the second quarter of 2012, which is offset by increased borrowings on the RevolvingCredit Facility.The Company's effective tax rate in 2013 was 37.9%, resulting in tax expense of $10.2 million. This compares to income tax expense of $22.2million in 2012 at an effective rate of 36.8%. The 2013 rate increased due to the recording of a $0.5 million reserve related to an uncertain tax position.As a result of the foregoing, the Company had net income of $16.6 million for 2013 as compared to net income of $38.2 million for 2012. Theinclusion of the 53rd week in 2012 did not have a material impact on the results of operations.2012 Compared to 2011Sales for 2012 increased 8.9% to $1,645.8 million from $1,511.9 million for 2011. The sales increase was driven by the strength of theCompany's comparable stores and new stores. Comparable store sales, which are sales in stores that are open for at least 14 full months prior to the reportingperiod, including eCommerce sales, increased by 5.7% in 2012. This compares to a 0.5% increase in comparable store sales in 2011. Excluding eCommercesales, comparable store sales increased 5.2% in 2012 as compared to flat sales in 2011. In 2012, comparable stores sales increased $84.6 million, while non-comparable store sales increased $33.0 million, driven by the net increase of 51 additional stores. Sales during the 53rd week of 2012 accounted for $16.3million of the increase, or 1.1%. The 5.7% increase in comparable store sales for 2012 reflects a combination of a 1.1% increase in the number oftransactions, an increase of 3.1% in average unit retail and an increase of 1.4% in units per transaction.Comparable store sales increase (decrease) by quarter is presented below: Fiscal Year 2012 20111st Quarter2.5% 0.2 %2nd Quarter5.4 0.93rd Quarter8.1 (0.6)4th Quarter6.6 1.3Total Year5.7 0.5 On a merchandise category basis, the Company experienced comparable store sales increases in almost every merchandise category during 2012,with home & gifts, footwear, cosmetics, missy sportswear, junior sportswear, and special sizes exceeding the Company average. The Company continued togrow its cosmetics line of business through the installation of Estee Lauder and Clinique counters, as 11 new Estee Lauder and 8 new Clinique counters wereopened during 2012, which raised the total number of stores with cosmetic treatment counters to 231. Home & gifts, which had the largest comparableincrease, benefited from an expanded assortment. Sales also benefited from increased offerings across all merchandise categories of national brand namemerchandise as new brand names were added and sought-after existing brands were expanded. Lastly, the Company made strategic investments in inventoryin certain areas to take advantage of macro trends, such as the energy boom in west Texas and Pennsylvania, competitive situations, such as J.C. Penneystores, and brand enhancements in regions such as border stores, and invested in basic items such as socks, underwear and jeans to improve in-stock status.On a market population basis, utilizing a ten-mile radius from each store, all market areas experienced an increase in comparable store sales in 2012. The Company's small market stores (populations less than 50,000) achieved a comparable store sales increase of 4.7%, while the Company's mid-sized(populations of 50,000 to 150,000) and higher-density markets (populations greater than 150,000) achieved comparable store sales increases of 7.4% and7.5%, respectively. Geographically, all regions except for the Southeast experienced comparable store sales increases in 2012. The Southeast region, whichwas the Company's best performing region in 2011 due to the rebranded Goody's stores, was negatively impacted by the anniversary of the Goody's rebrands. The Company has also benefited from additional market share gains in the rural markets where it competes directly with J.C. Penney stores.23Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsThe following is a summary of the changes in the components of cost of sales between 2012 and 2011, expressed as a percent of sales: Decrease in the ComponentsofCost of Sales Merchandise cost of sales rate(0.2)%Buying, occupancy and distribution expenses rate(0.5)Cost of sales rate(0.7)%Gross profit in 2012 was $459.8 million, an increase of 12.0% from $410.6 million in 2011. Gross profit, as a percent of sales, increased to27.9% in 2012 from 27.2% in 2011. The 0.7% improvement in the gross profit rate reflects a 0.2% decrease in the merchandise cost of sales rate and a 0.5%decrease in the buying, occupancy and distribution expenses rate. The decrease in merchandise cost of sales rate is primarily a result of lower markdowns in2012 compared to 2011. The decrease in buying, occupancy and distribution expenses rate was mainly due to improved leverage from higher sales in 2012 ascompared to 2011. Cost of sales for 2012 includes $1.6 million in expenses and approximately $1.0 million in inventory markdowns related to the South HillConsolidation.Selling, general and administrative ("SG&A") expenses in 2012 increased $38.9 million to $392.7 million from $353.8 million in 2011. As apercent of sales, SG&A expenses increased to 23.9% in 2012 from 23.4% in 2011. SG&A expenses in 2012 include one-time charges of approximately $3.3million incurred in 2012 associated with the resignation of the Company's former Chief Executive Officer and $1.1 million in expense related to the South HillConsolidation. The increase in 2012 also reflects incremental costs to operate 51 net additional stores, higher expenses related to the eCommerce and Steele'sinitiatives and higher incentive compensation costs of $17.1 million due to the Company's better results during 2012. These higher costs were partially offsetby higher credit income of $12.2 million associated with the Company's private label credit card portfolio. Store opening costs in 2012 were $3.7 million, which included costs related to the opening of 56 new stores and the relocation of 6 stores. In 2011,the Company incurred $5.7 million, which included costs related to the opening of 37 new stores, the relocation of 3 stores and the rebranding of 148 stores. Store opening costs are expensed as incurred and include costs of stores opening in future quarters.Net interest expense was $3.0 million in 2012 and $3.8 million in 2011. Interest expense is primarily comprised of interest on borrowings under theRevolving Credit Facility (see "Liquidity and Capital Resources"), related letters of credit and commitment fees, amortization of debt issuance costs, intereston finance lease obligations and equipment financing notes. The decrease in interest expense is primarily due to the reduced amount of long-term debtobligations, as the Company paid off its equipment financing notes in the 2012 second quarter.The Company's effective tax rate in 2012 was 36.8%, resulting in tax expense of $22.2 million. This compares to income tax expense of $16.3million in 2011 at an effective rate of 34.5%. 2011 benefited from discreet tax benefit items which were principally related to prior years' domestic productionactivities and employment tax credits.As a result of the foregoing, the Company had net income of $38.2 million for 2012 as compared to net income of 31.0 million for 2011. Theinclusion of the 53rd week in 2012 did not have a material impact on the results of operations.Seasonality and InflationHistorically, the Company's business is seasonal and sales are traditionally lower during the first three quarters of the fiscal year (February throughOctober) and higher during the last quarter of the fiscal year (November through January). The fourth quarter usually accounts for slightly more than 30% ofthe Company's annual sales, with the other quarters accounting for approximately 22% to 24% each. Working capital requirements fluctuate during the yearand generally reach their highest levels during the third and fourth quarters. The Company does not believe that inflation has had a material effect on itsresults of operations. However, there can be no assurance that the Company's business will not be affected by inflation in the future.24Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsThe following table shows quarterly information (unaudited) for the Company (in thousands, except per share amounts): Fiscal Year 2013 Q1 Q2 Q3 Q4Net sales$378,637$395,331 $360,177$499,411Gross profit90,216 115,469 83,092142,025Net income (loss)(6,856) 9,607 (10,971)24,862Adjusted net income (loss) (non-GAAP) (1)(126) 14,936 $(7,021) 32,197 Basic earnings (loss) per common share$(0.21) $0.29 $(0.34)$0.79Diluted earnings (loss) per common share(0.21) 0.29 (0.34)0.78Adjusted diluted earnings (loss) per common share (1)— 0.45 $(0.22) 1.01 Basic weighted average shares32,306 32,762 31,85431,215Diluted weighted average shares32,306 33,073 31,85431,438 Fiscal Year 2012 Q1 Q2 Q3 Q4Net sales$365,694 $381,624 $370,583 $527,899Gross profit98,839 115,174 79,864 170,898Net income (loss)(418) 11,662 (8,858) 35,793Adjusted net income (loss) (non-GAAP) (1)2,249 12,445 (6,267) 37,868 Basic earnings (loss) per common share$(0.01) $0.37 $(0.28) $1.10Diluted earnings (loss) per common share(0.01) 0.37 (0.28) 1.09Adjusted diluted earnings (loss) per common share (1)0.07 0.39 (0.20) 1.15 Basic weighted average shares30,536 31,010 31,558 31,957Diluted weighted average shares30,536 31,225 31,558 32,376(1) See Item 6, Selected Financial Data, for discussion of this non-GAAP financial measure and reconciliation to the most directly comparable U.S.GAAP financial measure.25Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsLiquidity and Capital ResourcesThe Company's liquidity is currently provided by (i) existing cash balances, (ii) operating cash flows, (iii) normal trade credit terms from the vendorand factor community, and (iv) its Revolving Credit Facility. The Company's primary cash requirements are for capital expenditures related to new stores,store relocations and remodeling and seasonal and new store inventory purchases. Key components of the Company's cash flows are summarized below (in thousands): Fiscal Year 2013 2012 2011Net cash provided by (used in): Operating activities$46,527 $75,981 $78,055Investing activities(61,236) (49,439) (45,318)Financing activities11,534 (27,226) (103,465) Operating ActivitiesDuring 2013, the Company generated $46.5 million in cash from operating activities. Net income, adjusted for non-cash expenses, provided cash ofapproximately $95.9 million. Changes in operating assets and liabilities used net cash of approximately $53.5 million, which included a $20.5 millionincrease in merchandise inventories, an increase in other assets of $6.4 million and a decrease in accounts payable and other liabilities of $26.7 million.Additionally, cash flows from operating activities included construction allowances from landlords of $4.2 million, which funded a portion of the capitalexpenditures related to store leasehold improvements in new and relocated stores.During 2012, the Company generated $76.0 million in cash from operating activities. Net income, adjusted for non-cash expenses, provided cash ofapproximately $106.3 million. Changes in operating assets and liabilities used net cash of approximately $34.5 million, which included a $66.0 millionincrease in merchandise inventories primarily to support the higher number of stores open and strategic investments in 2012 to support various salesinitiatives and an increase in other assets of $4.8 million partially offset by an increase in accounts payable and other liabilities of $36.2 million. Additionally, cash flows from operating activities also included construction allowances from landlords amounting to $4.2 million, which funded a portion ofthe capital expenditures related to store leasehold improvements in new and relocated stores.During 2011, the Company generated $78.1 million in cash from operating activities. Net income, adjusted for non-cash expenses, provided cash ofapproximately $107.5 million. Changes in operating assets and liabilities used net cash of approximately $33.9 million, which included a $22.4 millionincrease in merchandise inventories, an increase in other assets of $4.4 million and a $7.1 million decrease in accounts payable and other liabilities.Additionally, cash flows from operating activities also included construction allowances from landlords amounting to $4.5 million, which funded a portion ofthe capital expenditures related to store leasehold improvements in new and relocated stores.Investing ActivitiesCapital expenditures for 2013 were $61.3 million compared to $49.5 million in 2012 and $45.7 million in 2011. The Company opened 29 newstores and relocated 3 stores in 2013. In 2012, it opened 56 new stores and relocated 6 stores. In 2011, it opened 37 new stores, reopened 2 fire-damagedstores, a flood-damaged store and a snow damaged store, rebranded 148 stores and relocated 3 stores. The Company received construction allowances fromlandlords of $4.2 million in 2013 to fund a portion of the capital expenditures related to store leasehold improvements in new and relocated stores, while $4.2million and $4.5 million were received from landlords in 2012 and 2011, respectively. These funds have been recorded as deferred rent credits in the balancesheet and are amortized as an offset to rent expense over the lease term commencing with the date the allowances were contractually earned.Management currently estimates that capital expenditures in 2014, net of construction allowances to be received from landlords, will beapproximately $60.0 million. The expenditures will principally be for the opening of new stores, store expansions, relocations and remodels and investmentsin technology.26Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsFinancing ActivitiesOn June 30, 2011, the Company entered into an Amended and Restated Credit Agreement for a $250.0 million senior secured revolving credit facility(the "Revolving Credit Facility") that matures on June 30, 2016. The Revolving Credit Facility includes an uncommitted accordion feature to increase the sizeof the facility to $350.0 million. The Revolving Credit Facility is used by the Company to provide financing for working capital, capital expenditures andother general corporate purposes. Borrowings under the Revolving Credit Facility are limited to the availability under a borrowing base that is determinedprincipally on eligible inventory as defined by the Revolving Credit Facility agreement. Inventory and cash and cash equivalents are pledged as collateral underthe Revolving Credit Facility. The daily interest rates under the Revolving Credit Facility are determined by a prime rate or LIBOR, plus an applicable margin,as set forth in the Revolving Credit Facility agreement. On July 24, 2013, the Revolving Credit Facility agreement was amended to lower the applicable marginrates by 0.25%. In addition, the amendment fixed the commitment fee at 0.25% for the remaining term of the Revolving Credit Facility. During 2013, theweighted average interest rate on outstanding borrowings and the average daily borrowings under the Revolving Credit Facility were 1.82% and $57.6 million,respectively, as compared to 2.1% and $24.4 million in 2012. The outstanding balance on the Company's Revolving Credit Facility was $55.4 million and$6.0 million as of February 1, 2014 and February 2, 2013, respectively.The Company also issues letters of credit under the Revolving Credit Facility to support certain merchandise purchases and to collateralize retainedrisks and deductibles under various insurance programs. At February 1, 2014, the Company had outstanding letters of credit totaling approximately $5.4million. These letters of credit expire within twelve months of issuance. Excess borrowing availability under the Revolving Credit Facility at February 1, 2014,net of letters of credit outstanding, outstanding borrowings and accrued interest of $0.1 million, was $189.1 million.The Revolving Credit Facility agreement contains covenants that, among other things, restrict, based on required levels of excess availability, (i) theamount of additional debt or capital lease obligations, (ii) the payment of dividends and repurchase of common stock under certain circumstances and (iii)related party transactions. The Revolving Credit Facility agreement also contains a fixed charge coverage ratio covenant in the event excess availability is belowa defined threshold or an event of default has occurred. At February 1, 2014, the Company was in compliance with all of the financial covenants of theRevolving Credit Facility agreement and expects to continue to be in compliance in 2014.During 2013, the Company financed approximately $2.2 million of capital expenditures, bearing interest of 2.1%, of which $1.5 million will bepaid in 2014 and $0.7 million in 2015.On April 8, 2013, the Company announced that its Board of Directors (the "Board") approved a 25% increase in the Company's quarterly cashdividend rate to $0.125 per share from the previous quarterly rate of $0.10 per share. The new quarterly rate of $0.125 per share was and is applicable todividends declared by the Board beginning May 23, 2013. On February 21, 2014, the Company announced that the Board declared a quarterly cash dividendof $0.125 per share on the Company's common stock, payable on March 19, 2014, to shareholders of record at the close of business on March 4, 2014.On March 7, 2011, the Board approved a Stock Repurchase Program (the "2011 Stock Repurchase Program") which authorized the Company torepurchase up to $200 million of its outstanding common stock. The 2011 Stock Repurchase Program will expire when the Company has repurchased $200million of its outstanding common stock, unless terminated earlier by the Board. Through June 10, 2012, the Company repurchased approximately $100.1million of its outstanding common stock under the 2011 Stock Repurchase Program. On June 11, 2012, the Company announced that its Board had chosennot to spend additional capital under the 2011 Stock Repurchase Program for the time being. In addition, the Board authorized the Company to repurchaseshares of its outstanding common stock equal to the amount of proceeds and related tax benefits from the exercise of stock options, SARs and other equitygrants. Under such authorization, the Company repurchased 1,626,037 shares of its common stock for approximately $31.4 million during 2013. Purchasesof shares of the Company's common stock may be made from time to time, either on the open market or through privately negotiated transactions and arefinanced by the Company's existing cash, cash flow and other liquidity sources, as appropriate.While there can be no assurances, management believes that there should be sufficient liquidity to cover both the Company's short-term and long-term funding needs. The Company anticipates that it has adequate cash flows to cover its working capital needs, planned capital expenditures and debtservice requirements for the next year and foreseeable future.27Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsContractual ObligationsThe Company has numerous contractual commitments for purchases of merchandise inventories, services arising in the ordinary course ofbusiness, letters of credit, Revolving Credit Facility and other debt service and leases. Presented below is a summary of the Company's contractual obligationsas of February 1, 2014 (in thousands). These items are discussed in further detail in Note 7 and Note 12 to the Consolidated Financial Statements. Payment Due by PeriodContractual Obligations Total Less ThanOne Year 1-3Years 4-5Years More than 5YearsLong-term debt obligations Documentary letters of credit (1) $1,157 $1,157 $— $— $—Capital (finance) lease obligations Finance lease obligations 5,584 859 2,017 2,154 554Interest payments on finance lease obligations 1,536 487 715 308 26Other long-term debt obligations (2) 2,246 1,495 751 — —Operating lease obligations Office, property and equipment leases (3) 437,737 86,388 149,938 105,236 96,175Purchase obligations (4) 21,177 16,017 4,512 648 —Other long-term liabilities (5) — — — — —Total contractual obligations $469,437 $106,403 $157,933 $108,346 $96,755 (1)These documentary letters of credit support the importing of private label merchandise. The Company also had outstanding stand-by letters of creditthat totaled approximately $4.3 million at February 1, 2014 required to collateralize retained risks and deductibles under various insurance programs. The estimated liability that will be paid in cash related to stand-by letters of credit supporting insurance programs is reflected in accruedexpenses. If the Company fails to make payments when due, the beneficiaries of letters of credit could make demand for payment under the letters ofcredit.(2)During 2013, the Company financed approximately $2.2 million of capital expenditures, bearing interest of 2.1%.(3)The Company has certain operating leases with provisions for step rent or escalation payments. The Company records rent expense on a straight-linebasis, evenly dividing rent expense over the lease term, including the build-out period, if any, and where appropriate, applicable available leaserenewal option periods. However, this accounting treatment does not affect the future annual operating lease cash obligations as shown herein. TheCompany records construction allowances from landlords as a deferred rent credit when earned. Such deferred rent credit is amortized over therelated term of the lease, commencing with the date the Company contractually earned the construction allowance, as a reduction of rent expense.Certain leases provide for contingent rents that are not measurable at inception. These contingent rents are primarily based on a percentage of salesthat are in excess of a predetermined level. These amounts are excluded from minimum rent and are included in the determination of total rentexpense when it is probable that the expense has been incurred and the amount is reasonably estimable.(4)Purchase obligations include legally binding contracts such as firm commitments for utility purchases, capital expenditures, softwareacquisition/license commitments and legally binding service contracts. For the purposes of this table, contractual obligations for purchase of goodsor services are defined as agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimumquantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. If the obligation to purchasegoods or services is non-cancelable, the entire value of the contract is included in the above table. If the obligation is cancelable, but the Companywould incur a penalty if cancelled, the dollar amount of the penalty is included as a "purchase obligation." The Company fully expects to receive thebenefits of the goods or services in connection with fulfilling its obligation under these agreements. The expected timing for payment of theobligations discussed above is estimated based on current information. Timing of payments and actual amounts paid may be different depending onthe timing of receipt of goods or services or changes to agreed-upon amounts for some obligations.28Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents(5)Other long-term liabilities consist of deferred rent, deferred compensation and pension liability (see Note 8 to the Consolidated Financial Statements). Deferred rent of $49.4 million is included as a component of "operating lease obligations" in the contractual obligations table. Deferred compensationand pension liability are not included in the contractual obligations table as the timing of future payments is indeterminable.In the ordinary course of business, the Company enters into arrangements with vendors to purchase merchandise typically up to six months inadvance of expected delivery. These purchase orders do not contain any significant termination payments or other penalties if cancelled. As of February 1,2014, the Company had outstanding purchase orders of $184.3 million.The Company's funding policy is to make contributions to maintain the minimum funding requirements for its pension obligations in accordancewith the Employee Retirement Income Security Act. The Company may elect to contribute additional amounts to maintain a level of funding to minimize thePension Benefit Guaranty Corporation premium costs or to cover short-term liquidity needs of its defined benefit plan (the "Plan") in order to maintain currentinvested positions. The Company had no minimum contribution requirements for 2013 and contributed $0.1 million to the Plan in 2012. The Companyexpects to contribute approximately $0.3 million during 2014.The Company has not included $0.5 million of current liabilities for unrecognized tax benefits and the related interest and penalties in the contractualobligations table because the timing of cash settlements is not reasonably estimable. It is reasonably possible that such tax positions may change within thenext 12 months, primarily as a result of ongoing audits.Critical Accounting Policies and EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requiresmanagement to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The primaryestimates underlying the Company's consolidated financial statements include the valuation of inventory, the estimated useful life of property, equipment andleasehold improvements, the impairment analysis on long-lived assets, the valuation of the intangible asset, the reserve for sales returns, breakage income ongift cards and merchandise credits, self-insurance reserves and the estimated liability for pension obligations. The Company cautions that future events rarelydevelop exactly as forecast, and the best estimates routinely require adjustment. Therefore, actual results could differ from these estimates. Management basesits estimates on historical experience and on various assumptions which are believed to be reasonable under the circumstances. The following criticalaccounting policies affect the Company's more significant judgments and estimates used in the preparation of its consolidated financial statements.Inventory valuation. The Company values merchandise inventories using the lower of cost or market with cost determined using the weightedaverage cost method. The Company capitalizes distribution center costs associated with preparing inventory for sale, such as distribution payroll, benefits,occupancy, depreciation and other direct operating expenses as part of merchandise inventories. The Company also includes in inventory the cost of freight tothe Company's distribution centers and to stores as well as duties and fees related to import purchases.Vendor allowances. The Company receives consideration from its merchandise vendors in the form of allowances and reimbursements. Given thepromotional nature of the Company's business, the allowances are generally intended to offset the Company's costs of handling, promoting, advertising andselling the vendors' products in its stores. Vendor allowances related to the purchase of inventory are recorded as a reduction to the cost of inventory untilsold. Vendor allowances are recognized as a reduction of cost of goods sold or the related selling expense when the purpose for which the vendor funds wereintended to be used has been fulfilled and amounts have been authorized by vendors. Property, equipment and leasehold improvements. Additions to property, equipment and leasehold improvements are recorded at cost anddepreciated over their estimated useful lives using the straight-line method. The estimated useful lives of leasehold improvements do not exceed the term of therelated lease, including applicable available renewal options where appropriate. The estimated useful lives in years are generally as follows:Buildings & improvements20Store and office fixtures and equipment5-10Warehouse equipment5-15Leasehold improvements - stores5-15Leasehold improvements - corporate office10-20Impairment of long-lived assets. Property, plant and equipment and other long-lived assets are reviewed to determine whether any events or changesin circumstances indicate that the carrying amount of the asset may not be recoverable. For long-lived assets to be held and used, the Company bases itsevaluation on impairment indicators such as the nature of the asset's physical condition, the future economic benefit of the asset, any historical or futureprofitability measurements and other external market conditions or factors that may be present. If such impairment indicators are present or other factors existthat indicate the carrying amount of the asset may not be recoverable, the Company determines whether an impairment has occurred through the use of anundiscounted cash flows analysis of the asset at the lowest level for which identifiable cash flows exist. If an impairment has occurred, the Companyrecognizes a loss for the difference between the carrying amount and the estimated fair value of the asset. Management's judgment is necessary to estimate fairvalue. Accordingly, actual results could vary from those estimates.Intangible asset and impairment of intangible assets. As a part of the acquisition of Peebles in 2003, the Company acquired the rights to thetradename and trademark (collectively the "Tradename") of "Peebles," which was identified as an indefinite life intangible. The value of the Tradename wasdetermined to be $14.9 million at the time of the Peebles acquisition. Indefinite life intangible assets are not amortized but are tested for impairment annually ormore frequently when indicators of impairment exist. The Company completed its annual impairment test during the fourth quarter of 2013 and determinedthere was no impairment.Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Revenue recognition. Net sales, which excludes sales tax and are net of estimated returns, are recorded at point-of-sale in stores when payment isreceived and the customer takes possession of merchandise and at time of shipment for eCommerce sales. Shipping and handling fees charged to customersare also included in net sales with the corresponding costs recorded as costs of goods sold. The Company records deferred revenue on its balance sheet for thesale of gift cards and recognizes this revenue upon the redemption of gift cards in net sales. The Company similarly records deferred revenue on its balancesheet for merchandise credits issued related to customer returns and recognizes this revenue upon the redemption of the merchandise credits.Gift card and merchandise credits liability. Unredeemed gift cards and merchandise credits are recorded as a liability. Gift card and merchandisecredit breakage income ("breakage income") represents the balance of gift cards and merchandise credits for which the Company believes the likelihood ofredemption is remote. Breakage income is recognized based on usage or historical redemptions. The Company's gift cards and merchandise credits areconsidered to be a large pool of homogeneous transactions. The Company uses historical data to determine the breakage rate and objectively determines theestimated time period of actual redemptions. The Company recognized approximately $1.0 million, $1.0 million and $0.8 million of breakage income in2013, 2012 and 2011, respectively, which is included in the Consolidated Statements of Operations and Comprehensive Income as a reduction in selling,general and administrative expenses.Customer Loyalty Program. Customers who spend a required amount within a specified timeframe using the Company's private label credit cardreceive reward certificates which can be redeemed for merchandise. The Company estimates the net cost of the rewards that will be issued and redeemed andrecords this cost as purchases toward reward certificates are accumulated. The cost of the loyalty rewards program benefit is recorded in cost of sales, giventhat the Company provides customers with merchandise for these awards.Self-insurance reserves. The Company maintains self-insurance retentions with respect to general liability, workers compensation and healthbenefits for its employees. The Company estimates the accruals for the liabilities based on industry development factors and historical claim trend experience. Although management believes adequate reserves have been provided for expected liabilities arising from the Company's self-insured obligations, projectionsof future losses are inherently uncertain, and it is reasonably possible that estimates of these liabilities will change over the near term as circumstances develop.Frozen defined benefit plan. The Company maintains a frozen defined benefit plan. The plan's obligations and related assets are presented in Note14 to the Consolidated Financial Statements. The plan's assets are invested in actively managed and indexed mutual funds of domestic and internationalequities and investment-grade corporate bonds and U.S. government securities. The plan's obligations and the annual pension expense are determined byindependent actuaries using a number of assumptions. Key assumptions in measuring the plan's obligations include the discount rate applied to future benefitobligations and the estimated future return on plan assets. At February 1, 2014, assumptions used were a weighted average discount rate of 4.8% and aweighted average long-term rate of return on the plan assets of 7.0%.29Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsRecent Accounting Standards and DisclosuresIn February 2013, the FASB issued ASU No. 2013-02, which amends ASC Topic 220, Comprehensive Income and requires that entities presentinformation about reclassification adjustments from accumulated other comprehensive income in their interim and annual financial statements. The standardrequires that entities present either on the face of the income statement or as a separate note to the financial statements, the effect of significant amountsreclassified from each component of accumulated other comprehensive income. If a component is not required to be reclassified to net income in its entirety,entities are required to cross reference to the related footnote for additional information. For public companies, the standard was effective for fiscal years andinterim periods beginning after December 15, 2012. The adoption of this guidance required changes solely in presentation, and therefore did not have asignificant impact on the Company's condensed consolidated financial statements.In January 2013, the FASB issued ASU No. 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifiesthe scope of transactions that are subject to the disclosures about offsetting and requires disclosure of information about the effect or potential effect offinancial instrument netting arrangements on financial position. Entities are required to present both net (offset amounts) and gross information in the notes tothe financial statements for relevant assets and liabilities that are offset. This guidance was effective for fiscal years beginning on or after January 1, 2013,and interim period within those annual periods. The adoption of this guidance did not have a significant impact on the Company's consolidated financialstatements.In July 2012, the FASB issued ASU No. 2012-02, Intangibles - Goodwill and Other, which amends the guidance in ASC 350-30 on testingindefinite-lived intangible assets for impairment. The revised guidance permits an entity first to assess qualitative factors to determine whether it is more likelythan not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. TheASU was effective for impairment tests performed for fiscal years beginning after September 15, 2012. For its 2013 impairment testing, the Companyperformed a quantitative assessment and elected not to perform a qualitative assessment. The adoption of this ASU did not have a material impact on theCompany's consolidated financial condition, results of operations or cash flows.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKBorrowings under the Company's Revolving Credit Facility bear a floating rate of interest. As of February 1, 2014, the outstanding borrowingsunder the Company's Revolving Credit Facility were $55.4 million. On future borrowings, an increase in interest rates may have a negative impact on theCompany's results of operations and cash flows. The Company had average daily borrowings of $57.6 million bearing a weighted average interest rate of1.82% during 2013. A hypothetical 10% change from the weighted average interest rate would have a $0.1 million effect on the Company's 2013 annualresults of operations and cash flows.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATASee "Index to Consolidated Financial Statements of Stage Stores, Inc." included on page F-1 for information required under this Item 8.ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENot applicable.30Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsITEM 9A. CONTROLS AND PROCEDURESDisclosure Controls and ProceduresAs defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), the term "disclosure controls andprocedures" means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reportsthat it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules andforms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosedby an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including itsprincipal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding requireddisclosure.Management of the Company, with the participation of the Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of theCompany's disclosure controls and procedures and concluded that the Company's disclosure controls and procedures were effective as of February 1, 2014.Management's Annual Report on Internal Control Over Financial ReportingManagement of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company asdefined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. This system is designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States ofAmerica.The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and thatreceipts and expenditures of the Company are being made only in accordance with authorizations of management and the directors of the Company; and (iii)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could havea material effect on the financial statements, and provide reasonable assurance as to the detection of fraud.Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not preventor detect misstatements. Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time.With the participation of the Chief Executive Officer and Chief Financial Officer, the Company's management conducted an evaluation of theeffectiveness of the Company's internal control over financial reporting based on the framework and criteria established in Internal Control-IntegratedFramework (1992), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company'smanagement concluded that the Company's internal control over financial reporting was effective as of February 1, 2014.Our independent registered public accounting firm, Deloitte & Touche LLP, with direct access to our Board of Directors through our AuditCommittee, has audited the consolidated financial statements prepared by the Company and has issued an attestation report on the effectiveness of theCompany's internal control over financial reporting.Changes in Internal Control over Financial ReportingManagement of the Company, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the internal control overfinancial reporting and concluded that no change in the Company's internal control over financial reporting occurred during the fourth quarter endedFebruary 1, 2014 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.ITEM 9B. OTHER INFORMATIONNot applicable.31Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsPART IIIITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe following information pertains to the executive officers of the Company as of March 26, 2014: Name Age PositionMichael L. Glazer 65 President and Chief Executive Officer, DirectorSteven P. Lawrence 46 Chief Merchandising OfficerOded Shein 52 Executive Vice President, Chief Financial OfficerRon D. Lucas 66 Executive Vice President, Human ResourcesSteven L. Hunter 43 Executive Vice President, Chief Information OfficerRussell A. Lundy 51 Executive Vice President, StoresRichard E. Stasyszen 53 Senior Vice President, Finance and ControllerMr. Glazer joined the Company in April 2012 as President and Chief Executive Officer. He has served as a Director of the Company since August2001. Mr. Glazer served as the President and CEO of Mattress Giant Corporation from October 2009 to April 2012.Mr. Lawrence joined the Company in April 2012 as Chief Merchandising Officer. Prior to joining the Company, he spent 11 years with J.C. Penney,where he was most recently Co-Chief Merchant EVP GMM Men's, Kids & Home. Prior to joining J.C. Penney, Mr. Lawrence spent 11 years at the formerFoley's Department Stores, where he held various merchandising positions of increasing responsibility.Mr. Shein joined the Company in January 2011 as Executive Vice President, Chief Financial Officer. From July 2004 to January 2011, he served invarious financial positions at Belk, Inc., which included Vice President, Finance and Vice President and Treasurer. Prior to joining Belk, Inc., Mr. Sheinserved as the Vice President, Treasurer of Charming Shoppes, Inc.Mr. Lucas joined the Company in July 1995 as Senior Vice President, Human Resources and was promoted to Executive Vice President, HumanResources in March 1998.Mr. Hunter joined the Company in June 2008 as Senior Vice President, Chief Information Officer and was promoted to Executive Vice President,Chief Information Officer in March 2010. From May 2003 to June 2008, he served as Senior Vice President of Information Technology at Belk, Inc.Mr. Lundy joined the Company in November 2003 as Senior Vice President, Stores and was promoted to Executive Vice President, Stores in January2013. Prior to joining the Company, he spent 27 years with Peebles, Inc.Mr. Stasyszen joined the Company in March 1998 as Assistant Controller and was subsequently promoted to Vice President and Controller inFebruary 1999. In July 2001, he was promoted to Senior Vice President, Finance and Controller.The remaining information called for by this item is incorporated by reference to "Information Relating to the Board of Directors and Committees"and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement.ITEM 11. EXECUTIVE COMPENSATIONInformation regarding executive compensation called for by this item is incorporated by reference to "Information Relating to Board of Directors andCommittees – Compensation Committee-Compensation Committee Interlocks and Insider Participation," "Compensation of Directors and Executive Officers"and "Compensation of Directors and Executive Officers – Compensation Committee Report" in the Proxy Statement.32Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERSInformation regarding the security ownership of certain beneficial owners and management and related stockholder matters called for by this item isincorporated by reference to "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement.The remaining information called for by this item is incorporated by reference to "Securities Authorized For Issuance Under Equity CompensationPlans" in the Proxy Statement.ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information called for by this item is incorporated by reference to "Transactions with Related Persons," "Information Relating to Directors and DirectorNominees-In General" and "Information Related to the Board of Directors and Committees-Director Independence" in the Proxy Statement.ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESInformation regarding fees billed to the Company by its independent registered public accounting firm, Deloitte & Touche LLP, is incorporated byreference to "Principal Accountant Fees and Services" in the Proxy Statement.33Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsPART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a)Documents filed as part of this report:1. Financial Statements:See "Index to Consolidated Financial Statements of Stage Stores, Inc." on page F-1, the Report of Independent Registered Public AccountingFirm on page F-2, and the Financial Statements on pages F-3 to F-28, of this Form 10-K, all of which are incorporated herein by reference.2. Financial Statement Schedules:All schedules are omitted because they are not applicable or not required or because the required information is shown in the ConsolidatedFinancial Statements or Notes thereto on pages F-3 to F-28, which are incorporated herein by reference.3. Exhibits Index:The following documents are the exhibits to this Form 10-K. For convenient reference, each exhibit is listed according to the Exhibit Table ofItem 601 of Regulation S-K.ExhibitNumber Description3.1Amended and Restated Articles of Incorporation of Stage Stores, Inc. dated June 7, 2007 are incorporated by reference to Exhibit 3.1 to StageStores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filed September 12, 2007.3.2Amended and Restated By-Laws of Stage Stores, Inc. dated March 28, 2007 are incorporated by reference to Exhibit 3.3 to Stage Stores' AnnualReport on Form 10-K (Commission File No. 1-14035) filed April 3, 2007.4.1Form of Common Stock Certificate of Stage Stores, Inc. is incorporated by reference to Exhibit 4.1 to Stage Stores' Registration Statement onForm 10 (Commission File No. 000-21011) filed October 29, 2001.10.1Amended and Restated Credit Agreement dated as of June 30, 2011, among Specialty Retailers, Inc., as Borrower, Stages Stores, Inc. andSpecialty Retailers (TX) LLC, as Facility Guarantors, the Lenders Party thereto, Bank of America, N.A., as Administrative Agent and asCollateral Agent, Wells Fargo Capital Finance, LLC, as Documentation Agent, and JPMorgan Chase Bank, N.A. and Regions Bank, as Co-Syndication Agents is incorporated by reference to Exhibit 4.1 to Stage Stores' Quarterly Report on Form 10-Q (Commission File No. 1-14035)filed September 7, 2011. Some schedules to this Exhibit have been omitted. The registrant agrees to furnish supplementally a copy of any of theomitted schedules to this Exhibit to the Securities and Exchange Commission upon its request.10.2First Amendment to Amended and Restated Credit Agreement dated as of July 24, 2013 by and among Specialty Retailers, Inc., as Borrower,Stages Stores, Inc. and Specialty Retailers (TX) LLC, as Facility Guarantors, and Bank of America, N.A., as Agent, is incorporated byreference to Exhibit 10.2 to Stage Stores' Quarterly Report on Form 10-Q (Commission File No.1-14035) filed September 12, 2013.10.3†Stage Stores, Inc. Amended and Restated 2001 Equity Incentive Plan effective June 3, 2004 is incorporated by reference to Exhibit 10.1 to StageStores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filed September 6, 2012.10. 4†Stage Stores, Inc. Second Amended and Restated 2008 Equity Incentive Plan effective June 9, 2011 is incorporated by reference to Exhibit 10.2to Stage Stores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filed September 6, 2012.10.5†Stage Stores, Inc. Amended and Restated 2003 Non-Employee Director Equity Compensation Plan effective March 28, 2012 is incorporated byreference to Exhibit 10.3 to Stage Stores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filed September 6, 2012.34Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10.6†Form of Stock Appreciation Rights Agreement (Employee) under the Stage Stores, Inc. Amended and Restated 2001 Equity Incentive Plan isincorporated by reference to Exhibit 10.4 to Stage Stores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filed September 6,2012.10.7†Form of Stock Appreciation Rights Agreement (Employee) under the Stage Stores, Inc. Second Amended and Restated 2008 Equity IncentivePlan is incorporated by reference to Exhibit 10.5 to Stage Stores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filedSeptember 6, 2012.10.8†Form of Performance Based Share Agreement under the Stage Stores, Inc. Amended and Restated 2001 Equity Incentive Plan is incorporated byreference to Exhibit 10.6 to Stage Stores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filed September 6, 2012.10.9†Form of Performance Based Share Agreement under the Stage Stores, Inc. Second Amended and Restated 2008 Equity Incentive Plan isincorporated by reference to Exhibit 10.7 to Stage Stores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filed September 6,2012.10.10†Form of Restricted Stock Award Agreement (Employee) under the Stage Stores, Inc. Amended and Restated 2001 Equity Incentive Plan (prior to2012; cliff vesting; all employees) is incorporated by reference to Exhibit 10.8 to Stage Stores' Quarterly Report on Form 10-Q (Commission FileNo. 1-14035) filed September 6, 2012.10.11†Form of Restricted Stock Award Agreement (Employee) under the Stage Stores, Inc. Amended and Restated 2001 Equity Incentive Plan (4 yearpro rata vesting; SVPs and above) is incorporated by reference to Exhibit 10.9 to Stage Stores' Quarterly Report on Form 10-Q (CommissionFile No. 1-14035) filed September 6, 2012.10.12†Form of Restricted Stock Award Agreement (Employee) under the Stage Stores, Inc. Amended and Restated 2001 Equity Incentive Plan (4 yearpro rata vesting; below SVP level) is incorporated by reference to Exhibit 10.10 to Stage Stores' Quarterly Report on Form 10-Q (CommissionFile No. 1-14035) filed September 6, 2012.10.13†Form of Restricted Stock Award Agreement (Employee) under the Stage Stores, Inc. Amended and Restated 2001 Equity Incentive Plan (4 yearpro rata vesting; EVPs and above; with non-compete) is incorporated by reference to Exhibit 10.11 to Stage Stores' Quarterly Report on Form10-Q (Commission File No. 1-14035) filed September 6, 2012.10.14†Form of Restricted Stock Award Agreement (Employee) under the Stage Stores, Inc. Second Amended and Restated 2008 Equity Incentive Plan(cliff vesting; all employees) is incorporated by reference to Exhibit 10.12 to Stage Stores' Quarterly Report on Form 10-Q (Commission File No.1-14035) filed September 6, 2012.10.15†Form of Restricted Stock Award Agreement (Employee) under the Stage Stores, Inc. Second Amended and Restated 2008 Equity Incentive Plan (4year pro rata vesting; SVPs and above) is incorporated by reference to Exhibit 10.13 to Stage Stores' Quarterly Report on Form 10-Q(Commission File No. 1-14035) filed September 6, 2012.10.16†Form of Restricted Stock Award Agreement (Employee) under the Stage Stores, Inc. Second Amended and Restated 2008 Equity Incentive Plan (4year pro rata vesting; below SVP level) is incorporated by reference to Exhibit 10.14 to Stage Stores' Quarterly Report on Form 10-Q(Commission File No. 1-14035) filed September 6, 2012.10.17†Form of Restricted Stock Award Agreement (Employee) under the Stage Stores, Inc. Second Amended and Restated 2008 Equity Incentive Plan (4year pro rata vesting; EVPs and above; with non-compete) is incorporated by reference to Exhibit 10.15 to Stage Stores' Quarterly Report onForm 10-Q (Commission File No. 1-14035) filed September 6, 2012.10.18†Form of Nonstatutory Stock Option Agreement (Employee) under the Stage Stores, Inc. Amended and Restated 2001 Equity Incentive Plan isincorporated by reference to Exhibit 10.16 to Stage Stores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filed September 6,2012.10.19†Form of Nonstatutory Stock Option Agreement (Employee) under the Stage Stores, Inc. Second Amended and Restated 2008 Equity IncentivePlan is incorporated by reference to Exhibit 10.17 to Stage Stores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filedSeptember 6, 2012.10.20†Form of Nonstatutory Stock Option Agreement (Director) under the Stage Stores, Inc. Amended and Restated 2001 Equity Incentive Plan isincorporated by reference to Exhibit 10.18 to Stage Stores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filed September 6,2012.35Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10.21†Form of Initial Grant Restricted Stock Award Agreement (Director) under the Stage Stores, Inc. Amended and Restated 2001 Equity IncentivePlan is incorporated by reference to Exhibit 10.19 to Stage Stores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filedSeptember 6, 2012.10. 22†Form of Initial Grant Restricted Stock Award Agreement (Director) under the Stage Stores, Inc. Second Amended and Restated 2008 EquityIncentive Plan is incorporated by reference to Exhibit 10.20 to Stage Stores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filedSeptember 6, 2012.10.23†Form of Reelection Grant Restricted Stock Award Agreement (Director) under the Stage Stores, Inc. Amended and Restated 2001 Equity IncentivePlan is incorporated by reference to Exhibit 10.21 to Stage Stores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filedSeptember 6, 2012.10.24†Form of Reelection Grant Restricted Stock Award Agreement (Director) under the Stage Stores, Inc. Second Amended and Restated 2008 EquityIncentive Plan is incorporated by reference to Exhibit 10.22 to Stage Stores' Quarterly Report on Form 10-Q (Commission File No. 1-14035)filed September 6, 2012.10.25†Form of Shareholder Agreement for restricted stock (Director) under the Stage Stores, Inc. Amended and Restated 2003 Non-Employee DirectorEquity Compensation Plan is incorporated by reference to Exhibit 10.23 to Stage Stores' Quarterly Report on Form 10-Q (Commission File No.1-14035) filed September 6, 2012.10.26†Stage Stores, Inc. Nonqualified Deferred Compensation Plan, as Amended and Restated effective June 5, 2008 is incorporated by reference toExhibit 4.4 to Stage Stores' Form S-8 (Commission File No. 333-151568) filed June 10, 2008.10. 27#Amended and Restated Private Label Credit Card Plan Agreement Between World Financial Network Bank (now Comenity Bank) and StageStores, Inc. and Specialty Retailers, Inc. dated as of August 8, 2012 is incorporated by reference to Exhibit 10.1 to Stage Stores' AmendedQuarterly Report on Form 10-Q/A (Commission File No. 1-14035) filed March 7, 2013.10.28#Amendment No. One to Amended and Restated Private Label Credit Card Plan Agreement dated as of February 1, 2013, Between WorldFinancial Network Bank (now Comenity Bank) and Stage Stores, Inc. and Specialty Retailers, Inc. is incorporated by reference to Exhibit10.26 to Stage Stores' Annual Report on Form 10-K (Commission File No. 1-14035) filed April 3, 2013.10.29†Employment Agreement between Ed Record and Stage Stores, Inc. dated April 11, 2011 is incorporated by reference to Exhibit 10.3 to StageStores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filed June 9, 2011.10.30†Employment Agreement between Oded Shein and Stage Stores, Inc. dated January 10, 2011 is incorporated by reference to Exhibit 10.4 of StageStores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filed June 9, 2011.10.31†Employment Agreement between Steven Hunter and Stage Stores, Inc. dated April 11, 2011 is incorporated by reference to Exhibit 10.5 StageStores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filed June 9, 2011.10.32†Employment Agreement between Ronald Lucas and Stage Stores, Inc. dated April 11, 2011 is incorporated by reference to Exhibit 10.6 to StageStores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filed June 9, 2011.10.33†Employment Agreement between Michael Searles and Stage Stores, Inc. dated September 12, 2011 is incorporated by reference to Exhibit 10.1 toStage Stores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filed December 7, 2011.10.34†Separation Agreement between Michael Searles and Stage Stores, Inc. dated June 19, 2013 is incorporated by reference to Exhibit 10.1 to StageStores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filed September 12, 2013.10.35†Employment Agreement between Michael L. Glazer and Stage Stores, Inc. dated June 12, 2012 is incorporated by reference to Exhibit 10.25 toStage Stores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filed September 6, 2012.10.36†Employment Agreement between Steven Lawrence and Stage Stores, Inc. dated July 23, 2012 is incorporated by reference to Exhibit 10.3 toStage Stores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filed June 13, 2013.36Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10.37†Employment Agreement between Russ Lundy and Stage Stores, Inc. dated August 6, 2010 is incorporated by reference to Exhibit 10.2 to StageStores' Quarterly Report on Form 10-Q (Commission File No. 1-14035) filed June 13, 2013.14Code of Ethics for Senior Officers dated January 25, 2011 is incorporated by reference to Exhibit 14 to Stage Stores' Annual Report to Form 10-K (Commission File No. 1-14035) filed March 30, 2011.18Preferability Letter from Independent Registered Public Accounting Firm dated October 19, 2006 is incorporated by reference to Exhibit 18 toStage Stores' Quarterly Report on Form 10-Q (Commission File No 1-14035) filed October 24, 2006.21*Subsidiaries of Stage Stores, Inc.23*Consent of Independent Registered Public Accounting Firm.24.1*Power of Attorney: Directors (Form 10-K).24.2*Power of Attorney: Section 16 Filers.31.1*Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.31.2*Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.32*Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.101The following materials from Stage Stores Inc.'s Annual Report on Form 10-K for the fiscal year ended February 1, 2014, formatted in XBRL(eXtensible Business Reporting Language) are filed electronically herewith: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statementsof Operations and Comprehensive Income, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Stockholders'Equity, and (v) Notes to Consolidated Financial Statements.______________________________________________*Filed electronically herewith.† Management contract or compensatory plan or arrangement.#Certain confidential portions have been omitted pursuant to a confidential treatment request that has been filed separately with the Securities andExchange Commission.37Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized.STAGE STORES, INC. /s/ Michael L. GlazerApril 2, 2014Michael L. Glazer President and Chief Executive Officer (Principal Executive Officer) STAGE STORES, INC. /s/ Oded SheinApril 2, 2014Oded Shein Executive Vice President, Chief Financial Officer (Principal Financial Officer) STAGE STORES, INC. /s/ Richard E. StasyszenApril 2, 2014Richard E. Stasyszen Senior Vice President, Finance and Controller (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. * Director April 2, 2014 * Director April 2, 2014Alan J. Barocas Lisa R. Kranc * Director April 2, 2014 * Director April 2, 2014Diane M. Ellis William J. Montgoris /s/ Michael L. Glazer Director April 2, 2014 * Director April 2, 2014Michael L. Glazer C. Clayton Reasor * Director April 2, 2014 * Director April 2, 2014Gabrielle E. Greene David Y. Schwartz * Director April 2, 2014 * Director April 2, 2014Earl J. Hesterberg Ralph P. Scozzafava (Constituting a majority of the Board of Directors) *By:/s/ Oded Shein Oded Shein Attorney-in-Fact38Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsINDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF STAGE STORES, INC. Page Number Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets at February 1, 2014 and February 2, 2013 F-3 Consolidated Statements of Operations and Comprehensive Income for the Fiscal Years 2013, 2012 and 2011 F-4 Consolidated Statements of Cash Flows for the Fiscal Years 2013, 2012 and 2011 F-5 Consolidated Statements of Stockholders' Equity for the Fiscal Years 2013, 2012 and 2011 F-6 Notes to Consolidated Financial Statements F-7F-1Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders of Stage Stores, Inc.Houston, TexasWe have audited the accompanying consolidated balance sheets of Stage Stores, Inc. and subsidiaries (the "Company") as of February 1, 2014 andFebruary 2, 2013, and the related consolidated statements of operations and comprehensive income, stockholders' equity, and cash flows for each of the threeyears in the period ended February 1, 2014. We also have audited the Company's internal control over financial reporting as of February 1, 2014 based oncriteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the TreadwayCommission. The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, andfor its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control Over FinancialReporting at Item 9A. Our responsibility is to express an opinion on these financial statements and an opinion on the Company's internal control over financialreporting based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whethereffective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates madeby management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining anunderstanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design andoperating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessaryin the circumstances. We believe that our audits provide a reasonable basis for our opinions.A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive andprincipal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'sassets that could have a material effect on the financial statements.Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management overrideof controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of theeffectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changesin conditions, or that the degree of compliance with the policies or procedures may deteriorate.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Stage Stores,Inc. and subsidiaries as of February 1, 2014 and February 2, 2013 and the results of their operations and their cash flows for each of the three years in theperiod ended February 1, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, theCompany maintained, in all material respects, effective internal control over financial reporting as of February 1, 2014, based on the criteria established inInternal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission./s/ DELOITTE & TOUCHE LLPHouston, TexasApril 2, 2014F-2Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Consolidated Balance Sheets(in thousands, except par value) February 1, 2014 February 2, 2013ASSETS Cash and cash equivalents$14,762 $17,937Merchandise inventories, net434,407 413,928Prepaid expenses and other current assets40,082 35,467Total current assets489,251 467,332 Property, equipment and leasehold improvements, net282,534 290,701Intangible asset14,910 14,910Other non-current assets, net24,142 21,928Total assets$810,837 $794,871LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable$125,707 $110,826Income taxes payable5,345 14,929Current portion of debt obligations2,354 744Accrued expenses and other current liabilities61,850 81,573Total current liabilities195,256 208,072 Long-term debt obligations60,871 11,585Deferred taxes15,644 19,461Other long-term liabilities84,622 90,883Total liabilities356,393 330,001 Commitments and contingencies— — Common stock, par value $0.01, 100,000 shares authorized, 31,222 and 32,014 shares issued,respectively312 320Additional paid-in capital384,295 376,615Less treasury stock - at cost, 0 and 0 shares, respectively(967) (701)Accumulated other comprehensive loss(4,616) (6,135)Retained earnings75,420 94,771Total stockholders' equity454,444 464,870Total liabilities and stockholders' equity$810,837 $794,871The accompanying notes are an integral part of these statements.F-3Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Consolidated Statements of Operations and Comprehensive Income(in thousands, except earnings per share) Fiscal Year 2013 2012 2011Net sales$1,633,556 $1,645,800 $1,511,919Cost of sales and related buying, occupancy and distribution expenses1,202,754 1,186,025 1,101,319Gross profit430,802 459,775 410,600 Selling, general and administrative expenses398,294 392,727 353,834Store opening costs2,959 3,657 5,670Interest expense, net of income of $0, $0 and $24, respectively2,744 3,011 3,821Income before income tax26,805 60,380 47,275Income tax expense10,163 22,201 16,315Net income$16,642 $38,179 $30,960 Other comprehensive income (loss): Employee benefit related adjustment, net of tax of $683, ($992),($1,289), respectively$1,138 $(1,645) $(2,186)Amortization of employee benefit related costs net of tax of $229, $156,and $220, respectively381 258 373Total other comprehensive income (loss)1,519 (1,387) (1,813)Comprehensive income$18,161 $36,792 $29,147 Basic and diluted earnings per share data: Basic earnings per share$0.51 $1.20 $0.93Basic weighted average shares outstanding32,034 31,278 33,021 Diluted earnings per share$0.51 $1.19 $0.92Diluted weighted average shares outstanding32,311 31,600 33,278The accompanying notes are an integral part of these statements.F-4Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Consolidated Statements of Cash Flows(in thousands) Fiscal Year 2013 2012 2011Cash flows from operating activities: Net income$16,642 $38,179 $30,960Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and impairment of long-lived assets69,925 60,426 61,680Loss (gain) on retirements of property, equipment and leasehold improvements860 454 (101)Deferred income taxes(808) 1,108 6,768Tax benefit (deficiency) from stock-based compensation1,761 (1,311) 738Stock-based compensation expense8,417 7,803 7,690Amortization of debt issuance costs279 417 347Excess tax benefits from stock-based compensation(2,076) (1,024) (1,339)Deferred compensation obligation266 (134) 134Amortization of employee benefit related costs610 414 592Construction allowances from landlords4,162 4,193 4,499Other changes in operating assets and liabilities: Increase in merchandise inventories(20,479) (65,984) (22,443)Increase in other assets(6,375) (4,802) (4,369)Increase (decrease) in accounts payable and other liabilities(26,657) 36,242 (7,101)Net cash provided by operating activities46,527 75,981 78,055 Cash flows from investing activities: Additions to property, equipment and leasehold improvements(61,263) (49,489) (45,731)Proceeds from insurance and disposal of assets27 50 413Net cash used in investing activities(61,236) (49,439) (45,318) Cash flows from financing activities: Proceeds from revolving credit facility borrowings494,885 357,910 238,800Payments of revolving credit facility borrowings(445,490) (376,410) (214,300)Payments of long-term debt obligations(744) (18,674) (13,489)Payments of debt issuance costs(128) — (1,149)Repurchases of common stock(31,367) (61) (109,985)Payments for stock related compensation(2,381) (326) (934)Proceeds from issuance of equity awards10,149 21,306 7,286Excess tax benefits from stock-based compensation2,076 1,024 1,339Cash dividends paid(15,466) (11,995) (11,033)Net cash provided by (used in) financing activities11,534 (27,226) (103,465) Net decrease in cash and cash equivalents(3,175) (684) (70,728) Cash and cash equivalents: Beginning of period17,937 18,621 89,349End of period$14,762 $17,937 $18,621 Supplemental disclosures including non-cash investing and financing activities: Interest paid$2,392 $2,679 $3,516Income taxes paid18,789 13,674 14,920Unpaid liabilities for capital expenditures4,918 5,176 3,887The accompanying notes are an integral part of these statements.F-5Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Consolidated Statements of Stockholders' Equity(in thousands, except per share amounts) CommonStock AdditionalPaid-in TreasuryStock AccumulatedOtherComprehensive Retained Shares Amount Capital Shares Amount Loss Earnings TotalBalance, January 29, 201156,946 $569 $516,079 (20,508) $(320,055) $(2,935) $295,851 $489,509 Net income— — — — — — 30,960 30,960Other comprehensive loss— — — — — (1,813) — (1,813)Dividends on common stock,$0.33 per share— — — — — — (11,033) (11,033)Deferred compensation— — 134 — (134) — — —Repurchases of common stock— — — (6,819) (109,985) — — (109,985)Retirement of treasury stock(27,327) (273) (181,907) 27,327 429,339 — (247,159) —Issuance of equity awards, net825 8 7,278 — — — — 7,286Tax withholdings paid for netsettlement of stock awards— — (800) — — — — (800)Stock-based compensation expense— — 7,690 — — — — 7,690Tax benefit from stock-basedcompensation— — 738 — — — — 738Recognition of pre-reorganizationdeferred tax assets— — 154 — — — — 154Balance, January 28, 201230,444 $304 $349,366 — $(835) $(4,748) $68,619 $412,706 Net income— — — — — — 38,179 38,179Other comprehensive loss— — — — — (1,387) — (1,387)Dividends on common stock,$0.38 per share— — — — — — (11,995) (11,995)Deferred compensation— — (134) — 134 — — —Repurchases of common stock— — — (4) (61) — — (61)Retirement of treasury stock(4) — (29) 4 61 — (32) —Issuance of equity awards, net1,574 16 21,290 — — — — 21,306Tax withholdings paid for netsettlement of stock awards— — (460) — — — — (460)Stock-based compensation expense— — 7,803 — — — — 7,803Tax deficiency from stock-basedcompensation— — (1,311) — — — — (1,311)Recognition of pre-reorganizationdeferred tax assets— — 90 — — — — 90Balance, February 2, 201332,014 $320 $376,615 — $(701) $(6,135) $94,771 $464,870 Net income— — — — — — 16,642 16,642Other comprehensive income— — — — — 1,519 — 1,519Dividends on common stock,$0.475 per share— — — — — — (15,466) (15,466)Deferred compensation— — 266 — (266) — — —Repurchases of common stock— — — (1,626) (31,367) — — (31,367)Retirement of treasury stock(1,626) (16) (10,824) 1,626 31,367 (20,527) —Issuance of equity awards, net834 8 10,141 — — — — 10,149Tax withholdings paid for netsettlement of stock awards— — (2,115) — — — — (2,115)Stock-based compensation expense— — 8,417 — — — — 8,417Tax benefit from stock-basedcompensation— — 1,761 — — — — 1,761Recognition of pre-reorganizationdeferred tax assets— — 34 — — — — 34Balance, February 1, 201431,222 $312 $384,295 — $(967) $(4,616) $75,420 $454,444 The accompanying notes are an integral part of these statements.F-6Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial StatementsNOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIESDescription of business: Stage Stores, Inc. (the "Company" or "Stage Stores") is a Houston, Texas-based specialty department store retailer, whichoperates under the Bealls, Goody's, Palais Royal, Peebles and Stage nameplates. The Company offers moderately priced, nationally recognized brand nameand private label apparel, accessories, cosmetics and footwear for the entire family. As of February 1, 2014, the Company also operated an off-price conceptunder the Steele's nameplate, that was sold on March 7, 2014. See Note 16 for additional disclosures on the Steele's divestiture. As of February 1, 2014, theCompany operated 883 stores located in 40 states, including 35 Steele's stores. The Company also offers its merchandise direct-to-consumer through itseCommerce website and Send program. The eCommerce website features similar, but broader, assortments of merchandise as that found in the Company'sstores, as well as other products not carried in its stores. The Send program allows customers to have merchandise shipped directly to their homes fromanother store if their size or color is not available in a local store.Principles of consolidation: The consolidated financial statements include the accounts of the Company, its subsidiary, Specialty Retailers, Inc., aTexas corporation, and its subsidiary, Specialty Retailers (TX) LLC, a Texas limited liability company. All intercompany transactions have been eliminatedin consolidation. The Company reports in a single operating segment – the operation of retail department stores. Revenues from customers are derived frommerchandise sales. The Company does not rely on any major customer as a source of revenue.Fiscal year: References to a particular year are to the Company's fiscal year, which is the 52- or 53-week period ending on the Saturday closest toJanuary 31st of the following calendar year. For example, a reference to "2011" is a reference to the fiscal year ended January 28, 2012, "2012" is a referenceto the fiscal year ended February 2, 2013 and "2013" is a reference to the fiscal year ended February 1, 2014. 2011 and 2013 consisted of 52 weeks, while2012 consisted of 53 weeks.Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States ofAmerica requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company evaluates its estimates, including those related to inventory, deferred tax assets, intangible asset, long-lived assets, salesreturns, gift card breakage, pension obligations, self-insurance and contingent liabilities. Actual results could differ from these estimates. Management basesits estimates on historical experience and on various assumptions which are believed to be reasonable under the circumstances.Cash and cash equivalents: The Company considers highly liquid investments with initial maturities of less than three months to be cashequivalents.Concentration of credit risk: Financial instruments which potentially subject the Company to concentrations of credit risk are primarily cash. TheCompany's cash management and investment policies restrict investments to low-risk, highly-liquid securities and the Company performs periodicevaluations of the relative credit standing of the financial institutions with which it deals.Merchandise inventories: The Company values merchandise inventories using the lower of cost or market with cost determined using the weightedaverage cost method. The Company capitalizes distribution center costs associated with preparing inventory for sale, such as distribution payroll, benefits,occupancy, depreciation and other direct operating expenses as part of merchandise inventories. The Company also includes in inventory the cost of freight tothe Company's distribution centers and to stores as well as duties and fees related to import purchases.Vendor allowances. The Company receives consideration from its merchandise vendors in the form of allowances and reimbursements. Given thepromotional nature of the Company's business, the allowances are generally intended to offset the Company's costs of handling, promoting, advertising andselling the vendors' products in its stores. Vendor allowances related to the purchase of inventory are recorded as a reduction to the cost of inventory untilsold. Vendor allowances are recognized as a reduction of cost of goods sold or the related selling expense when the purpose for which the vendor funds wereintended to be used has been fulfilled and amounts have been authorized by vendors. As part of the Company's South Hill merchandising consolidation, theCompany changed the method of collecting advertising allowances from its vendors resulting in a reduction in the amount of these allowances considered as areimbursement for specific, incremental, identifiable costs incurred to sell vendors' products. Accordingly, beginning in 2013, the majority of advertisingallowances are now recorded as a reduction to the cost of merchandise purchases.F-7Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)Stock-based compensation: The Company recognizes compensation expense in an amount equal to the fair value of share-based payments grantedto employees and independent directors. That cost is recognized ratably in selling, general and administrative expense over the period during which anemployee or independent director is required to provide service in exchange for the award.Property, equipment and leasehold improvements: Additions to property, equipment and leasehold improvements are recorded at cost anddepreciated over their estimated useful lives using the straight-line method. The estimated useful lives of leasehold improvements do not exceed the term of therelated lease, including applicable available renewal options where appropriate. The estimated useful lives in years are generally as follows:Buildings & improvements20Store and office fixtures and equipment5-10Warehouse equipment5-15Leasehold improvements - stores5-15Leasehold improvements - corporate office10-20 Impairment of long-lived assets: Property, plant and equipment and other long-lived assets are reviewed to determine whether any events or changesin circumstances indicate that the carrying amount of the asset may not be recoverable. For long-lived assets to be held and used, the Company bases itsevaluation on impairment indicators such as the nature of the asset's physical condition, the future economic benefit of the asset, any historical or futureprofitability measurements and other external market conditions or factors that may be present. If such impairment indicators are present or other factors existthat indicate the carrying amount of the asset may not be recoverable, the Company determines whether an impairment has occurred through the use of anundiscounted cash flows analysis of the asset at the lowest level for which identifiable cash flows exist. If an impairment has occurred, the Companyrecognizes a loss for the difference between the carrying amount and the estimated fair value of the asset. Management's judgment is necessary to estimate fairvalue. Accordingly, actual results could vary from those estimates.Intangible asset and impairment of intangible assets: As a part of the acquisition of Peebles in 2003, the Company acquired the rights to thetradename and trademark (collectively the "Tradename") of "Peebles," which was identified as an indefinite life intangible. The value of the Tradename wasdetermined to be $14.9 million at the time of the Peebles acquisition. Indefinite life intangible assets are not amortized but are tested for impairment annually ormore frequently when indicators of impairment exist. The Company completed its annual impairment test during the fourth quarter of 2013 and determinedthere was no impairment.Insurance recoveries: The Company incurred casualty losses during 2013, 2012 and 2011. The Company received total insurance proceeds of$0.7 million, $0.1 million and $1.7 million during 2013, 2012 and 2011, respectively, and recognized a net gain of $0.2 million in 2013, a net loss of $0.5million in 2012 and a net gain of $0.4 million in 2011, which are included in the Consolidated Statements of Operations and Comprehensive Income asselling, general and administrative expenses.Debt issuance costs: Debt issuance costs are accounted for as a deferred charge and amortized on a straight-line basis over the term of the relatedfinancing agreement. The balance of debt issuance costs, net of accumulated amortization of $0.7 million and $0.4 million, is $0.7 million and $0.9 millionat February 1, 2014 and February 2, 2013, respectively.Revenue recognition: Net sales, which excludes sales tax and are net of estimated returns, are recorded at point-of-sale in stores when payment isreceived and the customer takes possession of merchandise and at time of shipment for eCommerce sales. Shipping and handling fees charged to customersare also included in net sales with the corresponding costs recorded as costs of goods sold. The Company records deferred revenue on its balance sheet for thesale of gift cards and recognizes this revenue upon the redemption of gift cards in net sales. The Company similarly records deferred revenue on its balancesheet for merchandise credits issued related to customer returns and recognizes this revenue upon the redemption of the merchandise credits. Gift card and merchandise credit liability: Unredeemed gift cards and merchandise credits are recorded as a liability. Gift card and merchandisecredit breakage income ("breakage income") represents the balance of gift cards and merchandise credits for which the Company believes the likelihood ofredemption is remote. Breakage income is recognized based on usage or historical redemptions. The Company's gift cards and merchandise credits areconsidered to be a large pool of homogeneous transactions. The Company uses historical data to determine the breakage rate and objectively determines theestimated time period of actual redemptions. The Company recognized approximately $1.0 million, $1.0 million and $0.8 million of breakageF-8Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)income in 2013, 2012 and 2011, respectively, which is included in the Consolidated Statements of Operations and Comprehensive Income as a reduction inselling, general and administrative expenses.Customer Loyalty Program: Customers who spend a required amount within a specified timeframe using the Company's private label credit cardreceive reward certificates which can be redeemed for merchandise. The Company estimates the net cost of the rewards that will be issued and redeemed andrecords this cost as purchases toward reward certificates are accumulated. The cost of the loyalty rewards program benefit is recorded in cost of sales, giventhat the Company provides customers with merchandise for these awards.Store opening expenses: Costs related to the opening of new stores and the rebranding of current stores to a new nameplate are expensed as incurred. Store opening expenses include the rent accrued during the rent holiday period on new and relocated stores.Advertising expenses: Advertising costs are charged to operations when the related advertising first takes place. Advertising costs were $94.2million, $74.7 million and $64.7 million, for 2013, 2012 and 2011, respectively, which are net of advertising allowances received from vendors of $5.2million, $17.1 million and $16.9 million, respectively.Rent expense: The Company records rent expense on a straight-line basis over the lease term, including the build out period, and where appropriate,applicable available lease renewal option periods. The difference between the payment and expense in any period is recorded as deferred rent in other long-termliabilities in the Consolidated Balance Sheets. The Company records construction allowances from landlords when contractually earned as a deferred rentcredit in other long-term liabilities. Such deferred rent credit is amortized over the related term of the lease, commencing the date the Company contractuallyearned the construction allowance, as a reduction of rent expense. The deferred rent credit was $49.4 million and $54.1 million as of February 1, 2014 andFebruary 2, 2013, respectively.Certain leases provide for contingent rents that are not measurable at inception. These contingent rents are primarily based on a percentage of salesthat are in excess of a predetermined level. These amounts are excluded from minimum rent and are included in the determination of total rent expense when itis probable that the expense has been incurred and the amount is reasonably estimable.Income taxes: The provision for income taxes is computed based on the pretax income included in the Consolidated Statements of Operations andComprehensive Income. The asset and liability approach is used to recognize deferred tax liabilities and assets for the expected future tax consequences oftemporary differences between the carrying amounts for financial reporting purposes and the tax basis of assets and liabilities. A valuation allowance isestablished if it is more likely than not that some portion of the deferred tax asset will not be realized. See Note 15 for additional disclosures regarding incometaxes and deferred income taxes.Earnings per share: Basic earnings per share is computed using the weighted average number of common shares outstanding during themeasurement period. Diluted earnings per share is computed using the weighted average number of common shares as well as all potentially dilutive commonshare equivalents outstanding during the measurement period. Stock options, stock appreciation rights ("SARs") and non-vested stock grants were the onlypotentially dilutive share equivalents the Company had outstanding at February 1, 2014.The Company has issued non-vested stock grants that contain non-forfeitable rights to dividends. Under Accounting Standards Codification("ASC") 260-10, Earnings Per Share, non-vested stock grants that contain non-forfeitable rights to dividends or dividend equivalents are consideredparticipating securities and are included in the calculation of basic and diluted earnings per share pursuant to the two-class method. The two-class methoddetermines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and their respectiveparticipation rights in undistributed earnings. See Note 3 for additional disclosures regarding earnings per share.Recent accounting standards: In February 2013, the FASB issued ASU No. 2013-02, which amends ASC Topic 220, Comprehensive Incomeand requires that entities present information about reclassification adjustments from accumulated other comprehensive income in their interim and annualfinancial statements. The standard requires that entities present either on the face of the income statement or as a separate note to the financial statements, theeffect of significant amounts reclassified from each component of accumulated other comprehensive income. If a component is not required to be reclassified tonet income in its entirety, entities are required to cross reference to the related footnote for additional information. For public companies, theF-9Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)standard was effective for fiscal years and interim periods beginning after December 15, 2012. The adoption of this guidance required changes solely inpresentation, and therefore did not have a significant impact on the Company's condensed consolidated financial statements.In January 2013, the FASB issued ASU No. 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifiesthe scope of transactions that are subject to the disclosures about offsetting and requires disclosure of information about the effect or potential effect offinancial instrument netting arrangements on financial position. Entities are required to present both net (offset amounts) and gross information in the notes tothe financial statements for relevant assets and liabilities that are offset. This guidance was effective for fiscal years beginning on or after January 1, 2013,and interim period within those annual periods. The adoption of this guidance did not have a significant impact on the Company's consolidated financialstatements.In July 2012, the FASB issued ASU No. 2012-02, Intangibles - Goodwill and Other, which amends the guidance in ASC 350-30 on testingindefinite-lived intangible assets for impairment. The revised guidance permits an entity first to assess qualitative factors to determine whether it is more likelythan not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. TheASU was effective for impairment tests performed for fiscal years beginning after September 15, 2012. For its 2013 impairment testing, the Companyperformed a quantitative assessment and elected not to perform a qualitative assessment. The adoption of this ASU did not have a material impact on theCompany's consolidated financial condition, results of operations or cash flows.NOTE 2- SOUTH HILL CONSOLIDATIONOn February 11, 2013, the Company announced its plans to consolidate its South Hill, Virginia operations into its Houston, Texas corporateheadquarters (the "South Hill Consolidation"). This action was the culmination of an initiative that the Company began in 2012. The reasons for the SouthHill Consolidation were: (i) to have department store functions and processes entirely together in one location, (ii) to strengthen collaboration, teamwork andcommunications, while streamlining operations, enhancing overall operational efficiency and reducing costs, and (iii) to create consistency in merchandising,marketing and eCommerce.Total expenses in 2013 associated with the South Hill Consolidation, which was completed in 2013, were $11.3 million, of which $1.4 millionremained unpaid and is included in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheet as of February 1, 2014. Thecosts, which were primarily for severance and transitional payroll and related benefits, recruiting and relocation costs, and visual presentation supplies andother, were recorded in selling, general and administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income. TheCompany incurred and paid $2.7 million in 2012 primarily for transitional payroll and related benefits, recruiting and relocation costs, and property andequipment impairment. Merchandise cost of sales for 2013 also includes approximately $12.5 million related to the South Hill Consolidation due to inventoryliquidation costs associated with discontinued vendors and merchandise and advertising allowances deferred in inventory. During 2013, the Company committed to a plan to sell the building which housed its former South Hill operations and expects to complete the salewithin one year. Accordingly, the disposal group with a carrying value of $0.6 million has been reclassified as held for sale and included in prepaid expensesand other current assets on the Condensed Consolidated Balance Sheet as of February 1, 2014.NOTE 3- EARNINGS PER SHAREBasic earnings per share is computed using the weighted average number of common shares outstanding during the measurement period. Dilutedearnings per share is computed using the weighted average number of common shares as well as all potentially dilutive common share equivalents outstandingduring the measurement period.Under Accounting Standards Codification ("ASC") 260-10, Earnings Per Share, non-vested stock grants that contain non-forfeitable rights todividends or dividend equivalents are considered participating securities and are included in the calculation of basic and diluted earnings per share pursuant tothe two-class method. The two-class method determines earnings per share for each class of common stock and participating securities according to dividendsor dividend equivalents and their respective participation rights in undistributed earnings. Earnings per share ("EPS") has been calculated under the two-classmethod.F-10Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)The following tables show the computation of basic and diluted earnings per share for each period (in thousands, except per share amounts): Fiscal Year 2013 2012 2011Basic EPS: Net Income$16,642 $38,179 $30,960Less: Allocation of earnings to participating securities(232) (541) (375)Net income allocated to common shares16,410 37,638 30,585 Basic weighted average shares outstanding32,034 31,278 33,021Basic EPS$0.51 $1.20 $0.93 Fiscal Year 2013 2012 2011Diluted EPS: Net Income$16,642 $38,179 $30,960Less: Allocation of earnings to participating securities(232) (537) (373)Net income allocated to common shares16,410 37,642 30,587 Basic weighted average shares outstanding32,034 31,278 33,021Add: Dilutive effect of stock awards277 322 257Diluted weighted average shares outstanding32,311 31,600 33,278Diluted EPS$0.51 $1.19 $0.92 The following table illustrates the number of stock options and SARs that were outstanding, but not included in the computation of diluted earningsper share because the exercise price of the stock options and SARs was greater than the average market price of the Company's common shares (in thousands): Fiscal Year 2013 2012 2011Number of anti-dilutive stock options and SARs outstanding414 329 1,910F-11Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)NOTE 4 – FAIR VALUE MEASUREMENTSThe Company recognizes or discloses the fair value of its financial and non-financial assets and liabilities on a recurring and non-recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value,the Company assumes the highest and best use of the asset by market participants in which the Company would transact and the market-based riskmeasurements or assumptions that market participants would use in pricing the asset or liability.The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels, and bases thecategorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:Level 1 -Quoted prices in active markets for identical assets or liabilities.Level 2 -Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similarassets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data forsubstantially the full term of the assets or liabilities.Level 3 -Inputs that are both unobservable and significant to the overall fair value measurement reflect the Company's estimates ofassumptions that market participants would use in pricing the asset or liability. The following tables present the Company's financial assets and liabilities measured at fair value on a recurring basis in the Consolidated BalanceSheets (in thousands): February 1, 2014 Balance Quoted Prices inActive Markets for IdenticalInstruments(Level 1) Significant Other Observable Inputs(Level 2) SignificantUnobservable Inputs(Level 3)Other assets: Securities held in grantor trust for deferredcompensation plans (1)(2)$21,023 $21,023 $— $—Accrued expenses and other current liabilities: Deferred non-employee director equity compensationplan liability (2)$226 $226 $— $— February 2, 2013 Balance Quoted Prices inActive Markets for IdenticalInstruments(Level 1) Significant Other Observable Inputs(Level 2) SignificantUnobservable Inputs(Level 3)Other assets: Securities held in grantor trust for deferredcompensation plans (1)(2)$18,498 $18,498 $— $—Accrued expenses and other current liabilities: Deferred non-employee director equity compensationplan liability (2)$253 $253 $— $— (1)The Company has recorded in other long-term liabilities amounts related to these assets for the amount due to participants corresponding in value tothe securities held in the grantor trust.F-12Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)(2)Using the market approach, the fair values of these items represent quoted market prices multiplied by the quantities held. Net gains and lossesrelated to the changes in fair value in the assets and liabilities under the various deferred compensation plans are recorded in selling, general andadministrative expenses and were nil during 2013 and 2012.The following table shows the Company's nonfinancial assets measured at fair value on a nonrecurring basis in the Consolidated Balance Sheets (inthousands): February 1, 2014 Balance Quoted Prices in ActiveMarkets for Identical Instruments(Level 1) Significant Other Observable Inputs(Level 2) SignificantUnobservable Inputs(Level 3)Assets: Store property, equipment and leaseholdimprovements (3)$4,562 $— $— $4,562 February 2, 2013 Balance Quoted Prices in ActiveMarkets for Identical Instruments(Level 1) Significant Other Observable Inputs(Level 2) SignificantUnobservable Inputs(Level 3)Assets: Store property, equipment and leaseholdimprovements (3)$3,024 $— $— $3,024 (3)In accordance with ASC No. 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets, using an undiscounted cash flow model,the Company identified certain stores whose cash flow trends indicated that the carrying value of store property, equipment and leaseholdimprovements may not be fully recoverable and determined that impairment charges were necessary for 2013. The Company uses a discounted cashflow model to determine the fair value of its impaired assets. Key assumptions in determining future cash flows include, among other things,expected future operating performance and changes in economic conditions. Long-lived assets with a carrying amount of $12.6 million in 2013 and$4.0 million in 2012 were written down to their estimated fair value of $4.6 million in 2013 and $3.0 million in 2012, resulting in impairmentcharges of approximately $8.0 million during 2013 and $1.0 million during 2012. The $8.0 million in 2013 includes approximately $7.3 million ofimpairment charges for Steele's, which was disposed of subsequent to February 1, 2014. See Note 16 for additional disclosures on the Steele'sdivestiture. Financial instruments not measured at fair value are cash and cash equivalents, payables and debt obligations. The Company believes that theRevolving Credit Facility approximates fair value since interest rates are adjusted to reflect current rates. F-13Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)NOTE 5 - PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTSThe components of property, equipment and leasehold improvements were as follows (in thousands): February 1, 2014 February 2, 2013Land$1,842 $1,873Buildings and improvements15,511 17,786Fixtures and equipment457,335 421,547Leasehold improvements345,598 331,164Property, equipment and leasehold improvements820,286 772,370Accumulated depreciation537,752 481,669Property, equipment and leasehold improvements, net$282,534 $290,701 Depreciation expense was $61.9 million, $59.3 million and $61.2 million for 2013, 2012 and 2011, respectively. During 2013, 2012 and 2011,the Company, as a result of its ongoing review of the performance of its stores, identified certain stores whose cash flow trends indicated that the carryingvalue of property, equipment and leasehold improvements may not be fully recoverable. Impairment charges for these stores of $0.7 million, $0.8 million and$0.5 million were recorded in 2013, 2012 and 2011, respectively. The charges reflect the difference between these stores' carrying value and their fair value. In addition, property and equipment impairment charges for Steele's, which was disposed of subsequent to February 1, 2014, totaled $7.3 million in 2013and $0.2 million in impairment charges were recorded in 2012 related to the South Hill Consolidation. Cost of sales includes $57.0 million, $49.3 millionand $47.6 million in 2013, 2012 and 2011, respectively, related to depreciation expense and impairment charges. See Note 16 for additional disclosures on theSteele's divestiture.NOTE 6 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIESThe components of accrued expenses and other current liabilities were as follows (in thousands): February 1, 2014 February 2, 2013Accrued compensation and benefits$13,730 $32,516Gift card and merchandise credit liability9,952 9,511Self-insurance liability8,603 8,541Accrued occupancy5,720 6,054Accrued advertising4,389 6,934Current deferred income tax4,721 834Accrued capital expenditures2,756 2,899Other11,979 14,284Accrued expenses and other current liabilities$61,850 $81,573 F-14Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)NOTE 7 - DEBT OBLIGATIONS Debt obligations consist of the following (in thousands): February 1, 2014 February 2, 2013Revolving Credit Facility$55,395 $6,000Finance lease obligations5,584 6,329Other financing2,246 —Total debt obligations63,225 12,329Less: Current portion of debt obligations2,354 744Long-term debt obligations$60,871 $11,585 On June 30, 2011, the Company entered into an Amended and Restated Credit Agreement for a $250.0 million senior secured revolving credit facility(the "Revolving Credit Facility") that matures on June 30, 2016. The Revolving Credit Facility includes an uncommitted accordion feature to increase the sizeof the facility to $350.0 million. The Revolving Credit Facility is used by the Company to provide financing for working capital, capital expenditures andother general corporate purposes. Borrowings under the Revolving Credit Facility are limited to the availability under a borrowing base that is determinedprincipally on eligible inventory as defined by the Revolving Credit Facility agreement. Inventory and cash and cash equivalents are pledged as collateral underthe Revolving Credit Facility. The daily interest rates under the Revolving Credit Facility are determined by a prime rate or LIBOR, plus an applicable margin,as set forth in the Revolving Credit Facility agreement. On July 24, 2013, the Revolving Credit Facility agreement was amended to lower the applicable marginrates by 0.25%. In addition, the amendment fixed the commitment fee at 0.25% for the remaining term of the Revolving Credit Facility. During 2013, theweighted average interest rate on outstanding borrowings and the average daily borrowings under the Revolving Credit Facility were 1.82% and $57.6 million,respectively, as compared to 2.1% and $24.4 million in 2012. The outstanding balance on the Company's Revolving Credit Facility was $55.4 million and$6.0 million as of February 1, 2014 and February 2, 2013, respectively.The Company also issues letters of credit under the Revolving Credit Facility to support certain merchandise purchases and to collateralize retainedrisks and deductibles under various insurance programs. At February 1, 2014, the Company had outstanding letters of credit totaling approximately $5.4million. These letters of credit expire within twelve months of issuance. Excess borrowing availability under the Revolving Credit Facility at February 1, 2014,net of letters of credit outstanding, outstanding borrowings and accrued interest of $0.1 million, was $189.1 million.The Revolving Credit Facility agreement contains covenants that, among other things, restrict, based on required levels of excess availability, (i) theamount of additional debt or capital lease obligations, (ii) the payment of dividends and repurchase of common stock under certain circumstances and (iii)related party transactions. The Revolving Credit Facility agreement also contains a fixed charge coverage ratio covenant in the event excess availability is belowa defined threshold or an event of default has occurred. At February 1, 2014, the Company was in compliance with all of the financial covenants of theRevolving Credit Facility agreement and expects to continue to be in compliance in 2014.While infrequent in occurrence, occasionally the Company is responsible for the construction of leased stores and for paying project costs. ASC No.840-40-55, The Effect of Lessee Involvement in Asset Construction, requires the Company to be considered the owner (for accounting purposes) of this typeof project during the construction period. Such leases are accounted for as finance lease obligations with the amounts received from the landlord beingrecorded in debt obligations. Interest expense is recognized at a rate that will amortize the finance lease obligation over the initial term of the lease. Where ASCNo. 840-40-55 was applicable, the Company has recorded finance lease obligations with interest rates ranging from 6.1% to 16.9% on its ConsolidatedBalance Sheets related to five store leases as of February 1, 2014. Minimum annual payments required under existing finance lease obligations as ofFebruary 1, 2014 are as follows (in thousands):F-15Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)Fiscal YearMinimum LeasePayments Less: Interest Principal Payments2014$1,346 $487 $85920151,366 404 96220161,366 311 1,05520171,366 207 1,15920181,096 101 995Thereafter580 26 554Total$7,120 $1,536 $5,584 During 2013, the Company financed approximately $2.2 million of capital expenditures, bearing interest of 2.1%, of which $1.5 million will bepaid in 2014 and $0.7 million in 2015.NOTE 8 – OTHER LONG-TERM LIABILITIESThe components of other long-term liabilities were as follows (in thousands): February 1, 2014 February 2, 2013Deferred rent$49,376 $54,083Deferred compensation21,023 18,602Pension liability4,723 6,698Deferred revenue under ADS agreement6,500 7,500Other3,000 4,000Other long-term liabilities$84,622 $90,883 NOTE 9 - COMMITMENTS AND CONTINGENCIESThe Company has numerous contractual commitments for purchases of merchandise inventories, services arising in the ordinary course ofbusiness, letters of credit, Revolving Credit Facility and other debt service and leases. Contractual obligations for purchase of goods or services are defined asagreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities. In the ordinary course ofbusiness, the Company enters into arrangements with vendors to purchase merchandise typically up to six months in advance of expected delivery. Thesepurchase orders do not contain any significant termination payments or other penalties if canceled.From time to time, the Company and its subsidiaries are involved in various legal proceedings arising in the ordinary course of their business.Management does not believe that any pending legal proceedings, either individually or in the aggregate, are material to the financial condition, results ofoperations or cash flows of the Company or its subsidiaries.F-16Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)NOTE 10 - STOCKHOLDERS' EQUITYThe Company's deferred compensation plan covering executives and certain officers provides an investment option that allows participants to elect topurchase shares of the Company's common stock (the "Company Stock Investment Option"). The Company established a grantor trust to facilitate thecollection of funds and purchase of Company shares on the open market at prevailing market prices. All shares purchased through the grantor trust are heldin the trust until the participants are eligible to receive the benefits under the terms of the plan. At the time of the participant's eligibility, the deferredcompensation obligation related to the Company Stock Investment Option is settled by the delivery of the fixed number of shares held by the grantor trust onthe participant's behalf. In 2013, 2012 and 2011, participants in the Company's deferred compensation plan elected to invest approximately $0.3 million,$0.1 million and $0.1 million, respectively, of the total amount of deferred compensation withheld, in the Company Stock Investment Option. The purchaseof shares made by the grantor trust on behalf of the participants is included in treasury stock and the corresponding deferred compensation obligation isincluded in additional paid-in capital.On April 8, 2013, the Company announced that its Board of Directors (the "Board") approved a 25% increase in the Company's quarterly cashdividend rate to $0.125 per share from the previous quarterly rate of $0.10 per share. The new quarterly rate of $0.125 per share was and is applicable todividends declared by the Board beginning May 23, 2013. On February 21, 2014, the Company announced that the Board declared a quarterly cash dividendof $0.125 per share on the Company's common stock, payable on March 19, 2014, to shareholders of record at the close of business on March 4, 2014. On March 7, 2011, the Board approved a Stock Repurchase Program (the "2011 Stock Repurchase Program") which authorized the Company torepurchase up to $200 million of its outstanding common stock. The 2011 Stock Repurchase Program will expire when the Company has repurchased $200million of its outstanding common stock, unless terminated earlier by the Board. Through June 10, 2012, the Company repurchased approximately $100.1million of its outstanding common stock under the 2011 Stock Repurchase Program. On June 11, 2012, the Company announced that its Board had chosennot to spend additional capital under the 2011 Stock Repurchase Program for the time being. In addition, the Board authorized the Company to repurchaseshares of its outstanding common stock equal to the amount of proceeds and related tax benefits from the exercise of stock options, SARs and other equitygrants. Under such authorization, the Company repurchased 1,626,037 shares of its common stock for approximately $31.4 million during 2013. Purchasesof shares of the Company's common stock may be made from time to time, either on the open market or through privately negotiated transactions and arefinanced by the Company's existing cash, cash flow and other liquidity sources, as appropriate.F-17Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)NOTE 11 - PRIVATE LABEL CREDIT CARD PORTFOLIO On August 8, 2012, the Company entered into an Amended and Restated Private Label Credit Card Plan Agreement (the "Agreement") with WorldFinancial Network Bank (now Comenity Bank) (the "Bank"), an affiliate of Alliance Data Systems Corporation ("ADS"). The Agreement supersedes,restates and amends in its entirety an Amended and Restated Private Label Credit Card Program Agreement dated March 5, 2004, and various subsequentamendments thereto, between the Company and the Bank. Under the terms of the Agreement, which will remain in effect until July 31, 2021, the Bank will continue to provide private label credit card servicesfor the Company's credit card program, including account acquisition and activation, receivables funding, card authorization, private label credit cardissuance, statement generation, remittance processing, customer service functions and marketing services. The Company is required to perform certainduties, including electronic processing and transmitting of transaction records and marketing and promoting the private label credit card. As consideration,among other payments set forth in the Agreement, the Bank will pay the Company a monthly net portfolio yield payment and an annual portfolio performancebonus, if earned. Under the previous agreement, the Company received a premium or paid a discount on certain private label credit card sales, a share ofcertain fees generated by the portfolio and marketing support.The Company received certain upfront payments upon execution of the Agreement that are being recognized over the life of the Agreement. TheCompany realized $46.3 million, $31.0 million and $18.8 million related to its private label credit card agreements during 2013, 2012 and 2011, respectively,which have been recorded as a reduction to selling, general and administrative expenses.NOTE 12 - OPERATING LEASESThe Company leases stores, its corporate headquarters, one distribution center and equipment under operating leases. Such leases generally containrenewal options and require that the Company pay for utilities, taxes and maintenance expense. A number of store leases provide for escalating minimum rent.Rent expense for operating leases for 2013, 2012 and 2011 was $80.7 million, $75.9 million and $72.9 million, respectively, and includes minimum rentalsof $76.8 million, $71.5 million and $69.2 million in 2013, 2012 and 2011, respectively. Rent expense also includes contingent rentals of $3.9 million, $4.4million and $3.7 million in 2013, 2012 and 2011, respectively, and sublease rental income of $0.01 million, $0.01 million and $0.01 million in 2013, 2012and 2011, respectively.Minimum rental commitments on long-term, non-cancelable operating leases at February 1, 2014, net of sub-lease rental income, are as follows (inthousands):Fiscal Year Commitments2014 $86,3882015 80,3372016 69,6012017 59,3502018 45,886Thereafter 96,175Total $437,737 F-18Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)NOTE 13 – STOCK-BASED COMPENSATIONAs approved by the Company's shareholders, the Company established the Amended and Restated 2001 Equity Incentive Plan (the "2001 EquityIncentive Plan") and the Amended and Restated 2008 Equity Incentive Plan (the "2008 Equity Incentive Plan" and collectively with the 2001 Equity IncentivePlan, the "Equity Incentive Plans") to reward, retain and attract key personnel. The Equity Incentive Plans provide for grants of non-qualified or incentivestock options, stock appreciation rights ("SARs"), performance shares or units, stock units and stock grants. To fund the 2001 and 2008 Equity IncentivePlans, 12,375,000 and 4,550,000 shares of the Company's common stock were reserved for issuance upon exercise of awards, respectively.The following table summarizes the stock compensation expense by type of grant for 2013, 2012 and 2011 (in thousands, except per shareamounts): Fiscal Year 2013 2012 2011Stock options and SARs$1,521 $3,034 $4,244Non-vested stock4,204 3,198 2,027Performance shares2,692 1,571 1,419Total compensation expense8,417 7,803 7,690Related tax benefit(3,165) (2,869) (2,653) $5,252 $4,934 $5,037 Per share: Basic$0.16 $0.16 $0.15Diluted0.16 0.16 0.15As of February 1, 2014, the Company had unrecognized compensation cost of $15.5 million related to stock-based compensation awards granted. That cost is expected to be recognized over a weighted average period of 2.27 years.Stock Options and SARsThe Company historically granted stock options and SARs to its employees and members of management. The right to exercise stock options andSARs generally vests over four years from the date of grant, with 25% vesting at the end of each of the first four years following the date of grant. Stockoptions and SARs are settled by issuance of common stock. Options issued prior to January 29, 2005, will generally expire, if not exercised, within ten yearsfrom the date of the grant, while options and SARs granted after that date generally expire, if not exercised, within seven years from the date of grant. No stockoptions or SARs were granted during 2013 or 2012. The weighted average grant date fair value for SARs granted during 2011 was $8.69.The following table provides the significant weighted average assumptions used in determining the estimated fair value, at the date of grant under theBlack-Scholes option-pricing model, of SARs granted in 2011: Fiscal Year 2011Expected volatility63.4%-63.7%Weighted average volatility63.6%Risk-free rate1.5%-1.9%Expected life of options (in years)4.3Expected dividend yield1.6%-1.9% The expected volatility was based on historical volatility for a period equal to the award's expected life. The risk-free rate is based on the U.S.Treasury yield curve in effect at the time of grant. The expected life (estimated period of time outstanding) of awards granted was estimated using the historicalexercise behavior of employees. The expected dividend yield is based on the current dividend payout activity and the market price of the Company's stock.F-19Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)The following table summarizes information about stock options and SARs outstanding under the Equity Incentive Plans as of February 1, 2014and changes during the fifty-two weeks ended February 1, 2014: Number ofOutstandingShares Weighted AverageExercise Price Weighted AverageRemainingContractual Term(years) AggregateIntrinsicValue (inthousands)Outstanding at February 2, 20131,877,415 $16.69 Exercised(673,829) 16.85 Forfeited(140,735) 17.27 Outstanding at February 1, 20141,062,851 $16.52 2.5 $3,559 Vested or expected to vest at February 1, 20141,004,436 $16.48 2.4 $3,424 Exercisable at February 1, 2014770,776 $16.23 2.0 $2,885The following table summarizes information about non-vested stock options and SARs outstanding as of February 1, 2014 and changes during thefifty-two weeks ended February 1, 2014:Stock Options/ SARs Number ofShares WeightedAverageGrant DateFair ValueNon-vested at February 2, 2013 790,164 $7.31Vested (395,589) 6.65Forfeited (102,500) 8.46Outstanding at February 1, 2014 292,075 7.97 The aggregate intrinsic value of stock options and SARs, defined as the amount by which the market price of the underlying stock on the date ofexercise exceeds the exercise price of the option, exercised during 2013, 2012 and 2011 was $6.0 million, $6.9 million and $4.2 million, respectively. Non-vested StockThe Company grants shares of non-vested stock to its employees, members of management and independent directors. The non-vested stockconverts one for one to common stock at the end of the vesting period at no cost to the recipient to whom it is awarded. The vesting period of the non-vestedstock ranges from one to four years from the date of grant.The following table summarizes information about non-vested stock granted by the Company as of February 1, 2014 and changes during the fifty-two weeks ended February 1, 2014: Non-vested Stock Number ofShares WeightedAverageGrant DateFair ValueOutstanding at February 2, 2013 642,409 $16.21Granted 330,373 24.97Vested (191,713) 16.42Forfeited (128,610) 17.13Outstanding at February 1, 2014 652,459 20.40 F-20Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)The aggregate intrinsic value of non-vested stock that vested during 2013, 2012 and 2011 was $4.8 million, $2.3 million and $2.3 million,respectively. The weighted-average grant date fair value for non-vested shares granted in 2013, 2012 and 2011 was $24.97, $16.10 and $17.88, respectively. The payment of the employees' tax liability for a portion of the non-vested shares that vested during 2013 was satisfied by withholding shares with a fairvalue equal to the tax liability. As a result, the actual number of shares issued was 146,729.Performance SharesThe Company grants performance shares to members of senior management, at no cost to the recipient, as a means of rewarding them for theCompany's long-term performance based on shareholder return performance measures. The actual number of shares that could be issued ranges from zero to amaximum of two times the number of granted shares outstanding ("Target Shares"), as reflected in the table below. The actual number of shares issued isdetermined by the Company's shareholder return performance relative to a specific group of companies over a three-year performance cycle. Compensationexpense, which is recorded ratably over the vesting period, is based on the fair value at grant date and the anticipated number of shares of the Company'scommon stock, which is determined on a Monte Carlo probability model. Grant recipients do not have any shareholder rights until the granted shares havebeen issued.The following table summarizes information about the performance shares that remain outstanding as of February 1, 2014: PeriodGranted Target SharesOutstanding atBeginningof Year TargetSharesGranted Target SharesVested TargetSharesForfeited Target SharesOutstandingat Endof Year WeightedAverageGrant DateFair Value perShare 2011 39,800 — (1,150) (10,000) 28,650 $25.002012 238,100 — (3,300) (36,600) 198,200 18.042013 — 158,400 — (7,150) 151,250 33.81Total 277,900 158,400 (4,450) (53,750) 378,100 During 2013, 104,490 shares, with an aggregate intrinsic value of $2.7 million, vested related to the 2010 performance share grant. The payment ofthe recipients' tax liability for shares vesting during 2013 of approximately $0.9 million was satisfied by withholding shares with a fair value equal to the taxliability. As a result, the actual number of shares issued was 75,176.F-21Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)NOTE 14 - BENEFIT PLANS401(k) Plan: The Company has a contributory 401(k) savings plan (the "401(k) Plan") covering all full and part-time employees with 60 days ofservice, who are age 21 or older. Under the 401(k) Plan, participants may contribute up to 50% of their qualifying earnings on a pre-tax basis, and up to 10%of their qualifying earnings on a post-tax basis, subject to certain restrictions. The Company currently matches 50% of each participant's pre-taxcontributions, limited up to 6% of each participant's compensation under the Plan. The Company may make discretionary matching contributions during theyear. The Company's matching contributions expense for the 401(k) Plan were approximately $1.5 million, $1.5 million and $1.4 million in 2013, 2012 and2011, respectively.Deferred Compensation Plans: The Company has two deferred compensation plans (the "Deferred Compensation Plans") which provideexecutives, certain officers and key employees of the Company with the opportunity to participate in unfunded, deferred compensation programs that are notqualified under the Internal Revenue Code of 1986, as amended, (the "Code"). Generally, the Code and the Employee Retirement Income Security Act of1974, as amended, restrict contributions to a 401(k) plan by highly compensated employees. The Deferred Compensation Plans are intended to allowparticipants to defer income on a pre-tax basis. Under the Deferred Compensation Plans, participants may defer up to 50% of their base salary and up to100% of their bonus and earn a rate of return based on actual investments chosen by each participant. The Company has established grantor trusts for thepurposes of holding assets to provide benefits to the participants. For the plan involving the executives and certain officers, the Company will match 100% ofeach participant's contributions, up to 10% of the sum of their base salary and bonus. For the plan involving other key employees, the Company may make abi-weekly discretionary matching contribution. The Company currently matches 50% of each participant's contributions, up to 6% of the participant'scompensation offset by the contribution the Company makes to the participant's 401(k) account, if any. For both Deferred Compensation Plans, Companycontributions are vested 100%. In addition, the Company may, with approval by the Board of Directors, make an additional employer contribution in anyamount with respect to any participant as is determined in its sole discretion. The Company's matching contribution expense for the Deferred CompensationPlans was approximately $0.9 million, $1.7 million and $0.9 million for 2013, 2012 and 2011, respectively.Non-Employee Director Equity Compensation Plan: In 2003, the Company adopted, and the Company's shareholders approved, the 2003 Non-Employee Director Equity Compensation Plan. The plan was amended and restated effective December 19, 2009. The Company has reserved 225,000shares of its common stock to fund this plan. Under this plan, non-employee Directors have the option to defer all or a portion of their annual compensationfees and to receive such deferred fees in the form of restricted stock or deferred stock units as defined in this plan. At February 1, 2014 and February 2,2013, $0.2 million and $0.3 million, respectively, were deferred under this plan.Frozen Defined Benefit Plan: The Company sponsors a defined benefit plan (the "Plan"), which covers substantially all employees who had meteligibility requirements and were enrolled prior to June 30, 1998. The Plan was frozen effective June 30, 1998.Benefits for the Plan are administered through a trust arrangement, which provides monthly payments or lump sum distributions. Benefits underthe Plan were based upon a percentage of the participant's earnings during each year of credited service. Any service after the date the Plan was frozen willcontinue to count toward vesting and eligibility for normal and early retirement for existing participants. The measurement dates used to determine pensionbenefit obligations were February 1, 2014 and February 2, 2013. F-22Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)Information regarding the Plan is as follows (in thousands): Fiscal Year 2013 2012Change in benefit obligation: Benefit obligation at beginning of year$40,037 $37,888Employer service cost360 —Interest cost1,723 1,889Actuarial (gain) loss(1,609) 3,830Plan disbursements(3,932) (3,570)Projected benefit obligation at end of year36,579 40,037 Change in plan assets: Fair value of plan assets at beginning of year33,339 33,363Actual return on plan assets2,449 3,446Employer contributions— 100Plan disbursements(3,932) (3,570)Fair value of plan assets at end of year31,856 33,339 Underfunded status$(4,723) $(6,698) Amounts recognized in the consolidated balance sheet consist of: Accrued benefit liability - included in other long-term liabilities$(4,723) $(6,698)Amount recognized in accumulated other comprehensive loss, pre-tax (1)7,442 9,873 (1)Consists solely of net actuarial losses as there are no prior service costs. Fiscal Year 2013 2012 Weighted-average assumptions: For determining benefit obligations at year-end: Discount rate4.81% 4.43% Fiscal Year 2013 2012 2011For determining net periodic pension cost for year: Discount rate4.43% 5.10% 5.99%Expected return on assets7.00% 7.00% 7.50%The discount rate was determined using yields on a hypothetical bond portfolio that matches the approximated cash flows of the Plan. TheCompany develops its long-term rate of return assumptions using long-term historical actual return data considering the mix of investments that comprise planassets and input from professional advisors. The Plan's trustees have engaged investment advisors to manage and monitor performance of the investments ofthe Plan's assets and consult with the Plan's trustees.F-23Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)The allocations of Plan's assets by category are as follows: Fiscal Year 2014 Target Allocation 2013 2012Equity securities50% 56% 51%Fixed income securities50 42 47Other - primarily cash— 2 2Total100% 100% 100% The Company employs a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return on Plan assets for a prudent level of risk. The investment portfolio consists of actively managed and indexed mutual funds of domestic andinternational equities and investment-grade corporate bonds and U.S. government securities. Investment risk is measured and monitored on an ongoing basisthrough quarterly investment portfolio reviews and annual liability measurements. The following tables present the Plan assets measured at fair value on a recurring basis in the Consolidated Balance Sheets (in thousands): February 1, 2014 Balance Quoted Prices in ActiveMarkets for IdenticalInstruments(Level 1) Significant OtherObservableInputs(Level 2) Significant UnobservableInputs(Level 3)Mutual funds: Equity securities$17,773 $17,773 $— $—Fixed income securities13,512 13,512 — —Other - primarily cash571 571 — —Total$31,856 $31,856 $— $— February 2, 2013 Balance Quoted Prices in ActiveMarkets for IdenticalInstruments(Level 1) Significant OtherObservableInputs(Level 2) Significant UnobservableInputs(Level 3)Mutual funds: Equity securities$17,106 $17,106 $— $—Fixed income securities15,779 15,779 — —Other - primarily cash454 454 — —Total$33,339 $33,339 $— $— F-24Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)The components of net periodic benefit cost for the Plan were as follows (in thousands): Fiscal Year 2013 2012 2011Net periodic pension cost for the fiscalyear: Employer service cost$360 $— $—Interest cost1,723 1,889 2,063Expected return on plan assets(2,237) (2,253) (2,437)Net loss amortization610 414 158Net pension cost (income)456 50 (216)Loss due to settlement— — 434Total pension cost$456 $50 $218 Other changes in Plan assets and benefit obligations recognized in other comprehensive loss are as follows (in thousands): Fiscal Year 2013 2012Amortization of net loss$(610) $(414)Net (gain) loss(1,821) 2,637Net change recognized in other comprehensive loss, pre-tax$(2,431) $2,223 The estimated net loss that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $0.4million.The Company's funding policy is to make contributions to maintain the minimum funding requirements for its pension obligation in accordancewith the Employee Retirement Income Security Act. The Company may elect to contribute additional amounts to maintain a level of funding to minimize thePension Benefit Guaranty Corporation premium costs or to cover short-term liquidity needs of the Plan in order to maintain current invested positions. TheCompany expects to contribute approximately $0.3 million during 2014.The following benefit payments are expected to be paid (in thousands):Fiscal YearPayments2014$3,12920152,83620163,54120173,38920183,003Fiscal years 2019 - 202314,963 F-25Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)NOTE 15 - INCOME TAXES All Company operations are domestic. Income tax expense consisted of the following (in thousands): Fiscal Year 2013 2012 2011Federal income tax expense: Current$9,462 $17,467 $8,108Deferred(761) 1,170 6,101 8,701 18,637 14,209State income tax expense: Current1,509 3,626 1,673Deferred(47) (62) 433 1,462 3,564 2,106 $10,163 $22,201 $16,315Reconciliation between the federal income tax expense charged to income before income tax computed at statutory tax rates and the actual income taxexpense recorded follows (in thousands): 2013 2012 2011 Federal income tax expense at the statutory rate$9,382 $21,133 $16,546State income taxes, net974 2,199 1,411Uncertain tax position531 — —Other399 (99) (625)Job credits(1,123) (1,032) (1,017) $10,163 $22,201 $16,315Deferred tax assets (liabilities) consist of the following (in thousands): February 1, 2014 February 2, 2013Gross deferred tax assets: Net operating loss carryforwards$599 $717Accrued expenses3,031 3,241Lease obligations20,658 23,135Deferred compensation13,371 13,885Deferred income5,319 6,049Other1,366 1,486 44,344 48,513Gross deferred tax liabilities: Inventory(9,675) (6,263)Depreciation and amortization(54,570) (62,047) (64,245) (68,310) Valuation allowance(464) (498)Net deferred tax liabilities$(20,365) $(20,295)F-26Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)ASC No. 740, Income Taxes, requires recognition of future tax benefits of deferred tax assets to the extent such realization is more likely than not. Net non-current deferred tax liabilities were $15.6 million and $19.5 million and net current deferred tax liabilities were $4.7 million and $0.8 million atFebruary 1, 2014 and February 2, 2013, respectively. Consistent with the requirements of ASC No. 740, the tax benefits recognized related to pre-reorganization deferred tax assets have been recorded as a direct addition to additional paid-in capital. The remaining valuation allowance of $0.5 million and$0.5 million at February 1, 2014 and February 2, 2013, respectively, was established for pre-reorganization state net operating losses, which may expire priorto utilization. Adjustments are made to reduce the recorded valuation allowance when positive evidence exists that is sufficient to overcome the negativeevidence associated with those losses.The Company has net operating loss carryforwards for state income tax purposes of approximately $13.6 million which, if not utilized, will expirein varying amounts between 2014 and 2021. The Company does not have any net operating loss carryforwards for federal income tax purposes.As of February 1, 2014, the total unrecognized tax benefit was $0.5 million. Of this total, $0.5 million represents the amount of unrecognized taxbenefits that, if recognized, would favorably affect the effective income tax rate in a future period. A reconciliation of the beginning and ending amount of totalunrecognized tax benefits, including associated interest, is as follows (in thousands): 2013Balance, beginning of period$—Additions based on tax positions related to 2013105Additions for tax positions for prior years426Balance, end of period$531The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. The Company has concluded allU.S. federal income tax matters with the IRS for tax years through 2008, has a limited scope extension of time to assess taxes for tax year 2009, and iscurrently under audit for tax year 2010. The Company is subject to U.S. federal income tax examinations by tax authorities for the fiscal year ended January29, 2011 and forward. The Company is also subject to audit by the taxing authorities of 38 states for years generally after 2008.Although the outcome of tax audits is uncertain, the Company believes that adequate amounts of tax, interest and penalty have been accrued for anyadjustments that are expected to result from the years still subject to examination. The company recognizes penalty and interest accrued related to unrecognizedtax benefits as an income tax expense. During the years ended February 1, 2014, February 2, 2013, and January 28, 2012, the amount of penalties andinterest accrued was almost nil.Over the next 12 months, it is reasonably possible that the total unrecognized tax benefits could be reduced by $0.5 million if our position issustained upon audit, the controlling statute of limitations expires or we agree to a disallowance. The Company classifies unrecognized tax benefits expected tobe settled within one year as current tax liabilities. F-27Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsStage Stores, Inc.Notes to Consolidated Financial Statements– (continued)NOTE 16 - SUBSEQUENT EVENTSteele's, an off-price concept, was launched on November 1, 2011 and by February 1, 2014, the number of stores had grown to 35. In order to focusall of the Company's attention on its core department store business, management began to evaluate options for the discontinuance of operations during thefourth quarter of 2013. Subsequent to February 1, 2014, the decision was made to divest the Steele's stores. On March 7, 2014, the Company completed atransaction to sell the Steele's off-price operations. As of February 1, 2014, the carrying values of the major assets and liabilities included in the ConsolidatedBalance Sheet related to Steele’s were as follows (in thousands): February 1, 2014Merchandise inventories, net$10,498Property, equipment and leasehold improvements, net732Other assets442Liabilities809NOTE 17 - QUARTERLY FINANCIAL INFORMATION (unaudited)The following table shows quarterly information (in thousands, except per share amounts): Fiscal Year 2013 Q1 Q2 Q3 Q4Net sales$378,637 $395,331 $360,177 $499,411Gross profit90,216 115,469 83,092 142,025Net income (loss)(6,856) 9,607 (10,971) 24,862 Basic earnings (loss) per common share$(0.21) $0.29 $(0.34) $0.79Diluted earnings (loss) per common share(0.21) 0.29 (0.34) 0.78 Basic weighted average shares32,306 32,762 31,854 31,215Diluted weighted average shares32,306 33,073 31,854 31,438 Fiscal Year 2012 Q1 Q2 Q3 Q4Net sales$365,694 $381,624 $370,583 $527,899Gross profit98,839 115,174 79,864 170,898Net income (loss)(418) 11,662 (8,858) 35,793 Basic earnings (loss) per common share$(0.01) $0.37 $(0.28) $1.10Diluted earnings (loss) per common share(0.01) 0.37 (0.28) 1.09 Basic weighted average shares30,536 31,010 31,558 31,957Diluted weighted average shares30,536 31,225 31,558 32,376F-28Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 21 SUBSIDIARIES OF STAGE STORES, INC. Name State of Formation OwnershipSpecialty Retailers, Inc. TX 100%Specialty Retailers (TX) LLC TX 100%*______________________ *By Specialty Retailers, Inc.Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement Nos. 333-84072, 333-120960, 333-151566, 333-151568,333-160758, 333-162300 and 333-176094 on Form S-8 of our report dated April 2, 2014, relating to the financial statements ofStage Stores, Inc. and the effectiveness of Stage Stores, Inc.'s internal control over financial reporting, appearing in this Annual Reporton Form 10-K of Stage Stores, Inc. for the year ended February 1, 2014./s/ DELOITTE & TOUCHE LLP Houston, TexasApril 2, 2014Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 24.1POWER OF ATTORNEYKNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a Director of Stage Stores, Inc., a Nevada corporation (the “Company”),hereby constitutes and appoints Michael Glazer and Oded Shein, and each of them (with full power to each of them to act alone), the undersigned’s true andlawful attorneys-in-fact and agents, with full power of substitution, for the undersigned and in the undersigned’s name, place and stead in any and allcapacities, to sign and date, one or more Annual Reports for the Company’s 2013 fiscal year ended February 1, 2014 on Form 10-K under the SecuritiesExchange Act of 1934, as amended, or such other form as any such attorney-in-fact may deem necessary or desirable, and any amendments thereto, each insuch form as they or any one of them may approve, and to file the same with all exhibits thereto and other documents in connection therewith with theSecurities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each andevery act and thing requisite and necessary to be done so that such Annual Report shall comply with the Securities Exchange Act of 1934, as to all intents andpurposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them or theirsubstitute or resubstitute, may lawfully do or cause to be done by virtue hereof.IN WITNESS WHEREOF, each of the undersigned has signed this Power of Attorney as of the 11th day of February, 2014./s/ Alan J. Barocas /s/ Lisa R. Kranc Alan J. Barocas, DirectorLisa R. Kranc, Director/s/ Diane M. Ellis /s/ William J. Montgoris Diane M. Ellis, DirectorWilliam J. Montgoris, Director/s/ Michael L. Glazer /s/ C. Clayton Reasor Michael L. Glazer, DirectorC. Clayton Reasor, Director/s/ Gabrielle E. Greene /s/ David Y. Schwartz Gabrielle E. Greene, DirectorDavid Y. Schwartz, Director/s/ Earl J. Hesterberg /s/ Ralph P. Scozzafava Earl J. Hesterberg, DirectorRalph P. Scozzafava, DirectorSource: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 24.2POWER OF ATTORNEYKNOW ALL MEN BY THESE PRESENTS, that the undersigned Director or Executive Officer of Stage Stores, Inc., a Nevada corporation (the“Company”), in connection with the preparation and filing of reports on Form 3, 4 and 5 (as well as applications for EDGAR filer identification numbers andany other reports required under Section 16(a) of the Securities Exchange Act of 1934) and Form 144, if required under the Securities Act of 1933, on mybehalf including, but not limited to, those cases where time is short or I am unavailable to review the form, hereby constitute and appoint Michael L. Glazer,Oded Shein and Richard E. Stasyszen, and each of them (with full power to each of them to act alone), the undersigned’s true and lawful attorneys-in-fact andagents, for the undersigned and on the undersigned’s behalf and in the undersigned’s name, place and stead, in any and all capacities, to prepare, sign, andfile with the Securities and Exchange Commission reports on Form 3, 4 and 5 (as well as applications for EDGAR filer identification numbers and any otherreports required under Section 16(a) of the Securities Exchange Act of 1934) and Form 144, if required under the Securities Act of 1933, together with allamendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with the Securities and Exchange Commission andany other regulatory authority granting unto such attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thingrequisite and necessary to be done in order to effectuate the same as fully to all intents and purposes as the undersigned might or could do in person, herebyratifying and confirming all that said attorneys-in-fact and agents, or any of them, might lawfully do or cause to be done by virtue hereof.IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of the 11th day of February, 2014./s/ Alan J. Barocas /s/ Lisa R. Kranc Alan J. Barocas, DirectorLisa R. Kranc, Director/s/ Diane M. Ellis /s/ William J. Montgoris Diane M. Ellis, DirectorWilliam J. Montgoris, Director/s/ Michael L. Glazer /s/ C. Clayton Reasor Michael L. Glazer, DirectorC. Clayton Reasor, Director/s/ Gabrielle E. Greene /s/ David Y. Schwartz Gabrielle E. Greene, DirectorDavid Y. Schwartz, Director/s/ Earl J. Hesterberg /s/ Ralph P. Scozzafava Earl J. Hesterberg, DirectorRalph P. Scozzafava, DirectorSource: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of the 11th day of February, 2014.EXECUTIVE OFFICERS/s/ Michael L. Glazer /s/ Russell A. Lundy Michael L. GlazerRussell A. LundyPresident and Chief Executive OfficerExecutive Vice President, Store Operations/s/ Oded Shein /s/ Steven L. Hunter Oded SheinSteven L. HunterChief Financial OfficerExecutive Vice PresidentChief Information Officer/s/ Steven P. Lawrence /s/ Richard E. Stasyszen Steven P. LawrenceRichard E. StasyszenChief Merchandising OfficerSenior Vice President-Finance and Controller/s/ Ron D. Lucas Ron D. Lucas Executive Vice President, Human Resources Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TORULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED I, Michael L. Glazer, certify that: 1.I have reviewed this Annual Report on Form 10-K of Stage Stores, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant, and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financialreporting.5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.April 2, 2014/s/ Michael L. Glazer Michael L. Glazer Chief Executive OfficerSource: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TORULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED I, Oded Shein, certify that: 1.I have reviewed this Annual Report on Form 10-K of Stage Stores, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant, and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financialreporting.5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.April 2, 2014/s/ Oded Shein Oded Shein Chief Financial OfficerSource: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 32 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350 In connection with the Annual Report of Stage Stores, Inc. (the "Company") on Form 10-K for the year ended February 1, 2014 as filed with the Securities andExchange Commission on the date hereof (the "Report"), we, Michael L. Glazer and Oded Shein, Chief Executive Officer and Chief Financial Officer,respectively, of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to ourknowledge: 1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. April 2, 2014/s/ Michael L. Glazer Michael L. Glazer Chief Executive Officer /s/ Oded Shein Oded Shein Chief Financial OfficerSource: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Source: STAGE STORES INC, 10-K, April 02, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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