UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 4, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission file number 1-6140
DILLARD'S, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 71-0388071
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
1600 CANTRELL ROAD, LITTLE ROCK, ARKANSAS 72201
(Address of principal executive office)
(Zip Code)
(501) 376-5200
(Registrant's telephone number, including area code)
Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter time that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No_
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
CLASS A COMMON STOCK as of August 4, 2001 79,697,319
CLASS B COMMON STOCK as of August 4, 2001 4,010,929
Index
DILLARD'S, INC.
Page
Number
Part I. Financial Information
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets as of August 4, 2001, February 3, 2001 and July 29, 2000. 3
Consolidated Statements of Operations and Retained Earnings for the Three, Six and
Twelve Month Periods Ended August 4, 2001 and July 29, 2000. 4
Consolidated Statements of Cash Flows for the Six Months Ended August 4, 2001 and
July 29, 2000. 5
Notes to Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk. 12
Part II. Other Information
Item 1. Legal Proceedings. 13 Item 2. Changes in Securities and Use of Proceeds. 13 Item 3. Defaults Upon Senior Securities. 13 Item 4. Submission of Matters to a Vote of Security Holders. 13 Item 5. Other Information. 14 Item 6. Exhibits and Reports on Form 8-K. 14 Signatures 14
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
DILLARD'S, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in Thousands)
August 4, February 3, July 29,
2001 2001 2000
-------------------------------- ----------------
Assets (Restated)
Current Assets:
Cash and cash equivalents $ 53,231 $ 193,980 $ 284,066
Trade accounts receivable, net 860,243 979,241 918,624
Merchandise inventories 1,832,829 1,616,186 1,947,985
Other current assets 43,018 53,541 54,608
-------------------------------- ----------------
Total current assets 2,789,321 2,842,948 3,205,283
Property and equipment, net 3,502,165 3,508,331 3,577,809
Goodwill, net 577,347 585,149 602,251
Other assets 261,757 262,881 277,954
-------------------------------- ----------------
Total Assets $7,130,590 $ 7,199,309 $7,663,297
================================ ================
Liabilities and Stockholders' Equity
Current Liabilities:
Trade accounts payable and accrued expenses $ 801,438 $ 647,843 $ 768,634
Federal and state income taxes 3,518 17,573 29,771
Current portion of long-term debt 208,262 208,918 208,049
Current portion of capital lease obligations 2,353 2,363 2,491
-------------------------------- ----------------
Total current liabilities 1,015,571 876,697 1,008,945
Long-term debt 2,200,139 2,374,124 2,725,447
Capital lease obligations 21,342 22,453 23,530
Other liabilities 126,150 125,988 117,841
Deferred income taxes 624,797 638,648 603,378
Guaranteed preferred beneficial interests in the
company's subordinated debentures 531,579 531,579 531,579
Stockholders' Equity:
Common stock 1,157 1,156 1,155
Additional paid-in capital 696,409 696,879 695,507
Retained earnings 2,562,919 2,558,933 2,503,263
Less treasury stock (649,473) (627,148) (547,348)
-------------------------------- ----------------
Total stockholders' equity 2,611,012 2,629,820 2,652,577
-------------------------------- ----------------
Total Liabilities and Stockholders' Equity $7,130,590 $7,199,309 $7,663,297
================================ ================
See notes to consolidated financial statements.
DILLARD'S, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
Three Months Ended Six Months Ended Twelve Months Ended
------------------------------ --------------------------- ----------------------------
August 4, July 29, August 4, July 29, August 4, July 29,
2001 2000 2001 2000 2001 2000
--------------- -------------- ------------- ------------- ------------- -------------
(Restated) (Restated) (Restated)
Net sales $1,828,304 $1,843,363 $3,748,613 $3,925,940 $8,389,233 $8,592,791
Service charges, interest and other 57,259 58,705 114,535 121,876 243,884 240,201
--------------- -------------- ------------- ------------- ------------- -------------
1,885,563 1,902,068 3,863,148 4,047,816 8,633,117 8,832,992
Costs and Expenses:
Cost of sales 1,238,370 1,227,837 2,491,377 2,597,032 5,696,492 5,743,251
Advertising, selling, administrative
and general expenses 537,941 522,648 1,079,472 1,059,006 2,240,284 2,203,528
Depreciation and amortization 76,840 75,701 154,035 151,677 305,556 298,658
Rentals 15,785 16,090 31,583 32,196 75,430 75,911
Interest and debt expense 47,965 57,595 96,150 116,322 204,151 232,770
Impairment charges 2,000 - 2,000 - 53,396 69,708
--------------- -------------- ------------- ------------- ------------- -------------
1,918,901 1,899,871 3,854,617 3,956,233 8,575,309 8,623,826
--------------- -------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes (33,338) 2,197 8,531 91,583 57,808 209,166
Income taxes (12,770) 835 3,265 34,800 12,495 91,805
--------------- -------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary item (20,568) 1,362 5,266 56,783 45,313 117,361
and accounting change
Extraordinary gain on the extinguishment
of debt, net of income taxes 1,963 4,391 5,122 4,391 28,042 4,391
Cumulative effect of accounting change,
net of income taxes - - - (129,991) - (129,991)
--------------- -------------- ------------- ------------- ------------- -------------
Net income (loss) (18,605) 5,753 10,388 (68,817) 73,355 (8,239)
Retained Earnings at Beginning
of the Period 2,584,600 2,501,255 2,558,933 2,579,567 2,503,263 2,527,366
--------------- -------------- ------------- ------------- ------------- -------------
2,565,995 2,507,008 2,569,321 2,510,750 2,576,618 2,519,127
Cash Dividends Declared (3,076) (3,745) (6,402) (7,487) (13,699) (15,864)
--------------- -------------- ------------- ------------- ------------- -------------
Retained Earnings at End of Period $2,562,919 $2,503,263 $2,562,919 $2,503,263 $ 2,562,919 $ 2,503,263
=============== ============== ============= ============= ============= =============
Basic and Diluted Earnings per share:
Earnings (loss) before extraordinary
item and accounting change $(0.24) $0.01 $0.06 $0.60 $0.52 $1.19
Extraordinary gain 0.02 0.05 0.06 0.05 0.33 0.04
Cumulative effect of accounting change - - - (1.38) - (1.31)
--------------- -------------- ------------- ------------- ------------- -------------
Net income (loss) $(0.22) $0.06 $0.12 $(0.73) $0.85 $(0.08)
=============== ============== ============= ============= ============= =============
Cash Dividends Declared Per
Common Share $0.04 $0.04 $0.08 $0.08 $0.16 $0.16
See notes to consolidated financial statements.
DILLARD'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
Six Months Ended
----------------------------
August 4, July 29,
2001 2000
------------ -------------
(Restated)
Operating Activities:
Net income (loss) $ 10,388 $ (68,817)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 155,477 153,105
Extraordinary gain on extinguishment of debt, net of taxes (5,122) (4,391)
Cumulative effect of accounting change - 129,991
Changes in operating assets and liabilities:
Decrease in trade accounts receivable, net 118,998 186,301
Increase in merchandise inventories and other current assets (206,120) (85,625)
Increase in other assets (318) (14,273)
Increase in trade accounts payable and accrued expenses
and income taxes 122,528 66,101
------------ -------------
Net cash provided by operating activities 195,831 362,392
Investing Activities:
Purchases of property and equipment (140,067) (102,367)
------------ -------------
Net cash used in investing activities (140,067) (102,367)
Financing Activities:
Principal payments on long-term debt and capital lease obligations (167,786) (63,240)
Cash dividends paid (6,402) (7,487)
Purchase of treasury stock (22,325) (103,953)
------------ -------------
Net cash used in financing activities (196,513) (174,680)
(Decrease) increase in cash and cash equivalents (140,749) 85,345
Cash and cash equivalents, beginning of period 193,980 198,721
------------ -------------
Cash and cash equivalents, end of period $ 53,231 $ 284,066
============ =============
See notes to consolidated financial statements.
DILLARD'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
August 4, 2001
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Dillard's, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by
accounting principles generally accepted in the United States for complete financial statements. In accordance with
Emerging Issues Task Force ("EITF") Issue 00-10, "Accounting for Shipping and Handling Fees and Costs," the Company has
reclassified shipping and handling reimbursements to Other Income for all periods. Certain prior period balances have been
reclassified to conform with current period presentation. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the
three, six and twelve month periods ended August 4, 2001 are not necessarily indicative of the results that may be expected
for the fiscal year ending February 2, 2002, due to the seasonal nature of the business. For further information, refer to
the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the
fiscal year ended February 3, 2001.
Note 2. Earnings Per Share Data
The following table sets forth the computation of basic and diluted earnings per share ("EPS") for the periods indicated (in
thousands, except per share data).
Three Months Ended Six Months Ended Twelve Months Ended
----------------------- ------------------------ -------------------------
August 4, July 29, August 4, July 29, August 4, July 29,
2001 2000 2001 2000 2001 2000
----------------------- ------------------------ -------------------------
Basic:
Earnings (loss) before extraordinary
item and accounting change $ (20,568) $1,362 $5,266 $56,783 $45,313 $117,361
Extraordinary gain 1,963 4,391 5,122 4,391 28,042 4,391
Cumulative effect of accounting change - - - (129,991) - (129,991)
----------------------- ------------------------ -------------------------
Net earnings (loss) available for
per-share calculations $ (18,605) $5,753 $10,388 $(68,817) $73,355 $ (8,239)
======================= ======================== =========================
Average shares outstanding 83,790 92,742 84,312 94,195 86,230 99,035
======================= ======================== =========================
Earnings (loss) before extraordinary
item and accounting change $ (.24) $ .01 $ .06 $ .60 $ .52 $ 1.19
Extraordinary gain .02 .05 .06 .05 .33 .04
Cumulative effect of accounting change - - - (1.38) - (1.31)
----------------------- ------------------------ -------------------------
Net income (loss) $ (.22) $ .06 $ .12 $ (.73) $ .85 $ (.08)
======================= ======================== =========================
Three Months Ended Six Months Ended Twelve Months Ended
----------------------- ----------------------- ------------------------
August 4, July 29, August 4, July 29, August 4, July 29,
2001 2000 2001 2000 2001 2000
----------------------- ----------------------- ------------------------
Diluted:
Earnings (loss) before extraordinary
item and accounting change $ (20,568) $1,362 $5,266 $56,783 $45,313 $117,361
Extraordinary gain 1,963 4,391 5,122 4,391 28,042 4,391
Cumulative effect of accounting change - - - (129,991) - (129,991)
----------------------- ----------------------- ------------------------
Net earnings (loss) available for
per-share calculations $(18,605) $5,753 $10,388 $(68,817) $73,355 $(8,239)
======================= ======================= ========================
Average shares outstanding 83,790 92,742 84,312 94,195 86,230 99,035
Stock options - - 538 - 297 13
----------------------- ----------------------- ------------------------
Total average equivalent shares 83,790 92,742 84,850 94,195 86,527 99,048
======================= ======================= ========================
Earnings (loss) before extraordinary
item and accounting change $ (.24) $ .01 $ .06 $ .60 $ .52 $ 1.19
Extraordinary gain .02 .05 .06 .05 .33 .04
Cumulative effect of accounting change - - - (1.38) - (1.31)
----------------------- ----------------------- ------------------------
Net income (loss) $ (.22) $ .06 $ .12 $ (.73) $ .85 $ (.08)
======================= ======================= ========================
Total stock options outstanding were 11,525,335 and 9,578,866 at August 4, 2001 and July 29, 2000. Of these, options to
purchase 8,944,185 and 9,578,866 shares of Class A common stock at prices ranging from $18.13 to $40.22 per share were
outstanding at August 4, 2001 and July 29, 2000, respectively, but were not included in the computation of diluted earnings
per share because they would be antidilutive.
Note 3. Common Stock Repurchase and Note Repurchase
During the quarter ended August 4, 2001, the Company repurchased 300,000 shares of Class A common stock valued at
approximately $5 million. For the six months ended August 4, 2001, the Company repurchased approximately 1.3 million shares
of Class A common stock valued at approximately $22.3 million.
During the quarter ended August 4, 2001, the Company repurchased $31.3 million of its outstanding unsecured notes prior to
their related maturity dates. During the six months ended August 4, 2001, the Company repurchased $62.1 million of its
outstanding unsecured notes prior to their related maturity dates. During the quarter ended August 4, 2001, the Company
also retired $100 million of its 6.17% Reset Put Securities due August 1, 2011 prior to their maturity dates. Interest
rates on the repurchased securities ranged from 6.17% to 9.1%. Maturity dates ranged from 2002 to 2023. In connection with
these transactions, the Company recorded after tax extraordinary gains during the three and six months ended August 4, 2001
of $2.0 million (net of income taxes of $1.1 million) and $5.1 million (net of income taxes of $2.9 million), respectively.
Note 4. Accounting Change
Effective the beginning of fiscal 2000, the Company changed its method of accounting for inventories under the retail
inventory method. The change principally relates to the Company's accounting for allowances received from vendors, from
recording such allowances directly as a reduction to cost of sales to recording such allowances as a reduction to
inventoriable product cost. The cumulative effect of this accounting change reduced net income by $130 million after taxes
(of $73.1 million) or $1.38 per share for the six months ended July 29, 2000. Financial statements for the three, six and
twelve months ended July 29, 2000 have been restated to reflect this change in accordance with Statement of Financial
Accounting Standards No. 3 "Reporting Accounting Changes in Interim Financial Statements".
Note 5. New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued two new pronouncements: Statement of Financial
Accounting Standards ("SFAS") No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets".
SFAS No. 141 addresses financial accounting and reporting for business combinations and supersedes APB No. 16, "Business
Combinations" and FASB Statement No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises". All
business combinations in the scope of this Statement are to be accounted for using one method, the purchase method. SFAS
141 is effective as follows: a) use of the pooling-of-interest method is prohibited for business combinations initiated
after June 30, 2001; and b) the provisions of SFAS 141 also apply to all business combinations accounted for by the purchase
method that are completed after June 30, 2001 (that is, the date of acquisition is July 2001 or later). The Company has
determined that the adoption of this statement will not have an impact on the consolidated financial statements.
SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes
APB No. 17 "Intangible Assets". It changes the accounting for goodwill from an amortization method to an impairment only
approach. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 to all goodwill and other intangible
assets recognized in an entity's statement of financial position at that date, regardless of when those assets were
initially recognized. The Company is currently evaluating the impact of adopting this pronouncement on its current
financial statements. Application of the nonamortization provisions of the Statement is expected to result in an annual
increase in net income of $15.6 million.
ITEM 2. Management's Discussion and Analysis of Financial
Condition And Results Of Operations
Results of Operations
The following table sets forth the results of operations, expressed as a percentage of net sales, for the periods indicated:
Three Months Ended Six Months Ended Twelve Months Ended
------------------------ ------------------------ -------------------------
August 4, July 29, August 4, July 29, August 4, July 29,
2001 2000 2001 2000 2001 2000
----------- ----------- ----------- ----------- ----------- -----------
Net sales 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 67.7 66.6 66.5 66.2 67.9 66.8
----------- ----------- ----------- ----------- ----------- -----------
Gross profit 32.3 33.4 33.5 33.8 32.1 33.2
Advertising, selling, administrative
and general expenses 29.4 28.4 28.8 27.0 26.7 25.6
Depreciation and amortization 4.2 4.1 4.1 3.8 3.6 3.5
Rentals 0.9 0.9 0.8 0.8 0.9 0.9
Interest and debt expense 2.6 3.1 2.5 3.0 2.4 2.7
Impairment charges 0.1 - 0.1 - 0.7 0.8
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses 37.2 36.5 36.3 34.6 34.3 33.5
Service charges, interest and other 3.1 3.2 3.1 3.1 2.9 2.8
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes (1.8) 0.1 0.3 2.3 0.7 2.5
Income taxes (0.7) 0.0 0.1 0.9 0.1 1.1
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary
item and accounting change (1.1) 0.1 0.2 1.4 0.6 1.4
Extraordinary gain 0.1 0.2 0.1 0.1 0.3 -
Cumulative effect of accounting change - - - (3.3) - (1.5)
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) (1.0) % 0.3 % 0.3 % (1.8) % 0.9 % (0.1) %
=========== =========== =========== =========== =========== ===========
Net Sales
Net sales decreased 1% and 5% for the three and six month periods ended August 4, 2001, respectively, compared to the three and six month periods ended July 29, 2000. This decrease was primarily due to decreases in comparable store sales of 1% and 5% for the three and six month periods ended August 4, 2001 compared to the same periods in 2000. The weakest performing merchandise categories for the three month period were home and men's clothing, which decreased 8% and 3%, respectively. Children's clothing increased 12% for the three month period ended August 4, 2001. Sales declined in all merchandising categories for the six month period ended August 4, 2001. The weakest performing merchandise categories were home and men's clothing, which declined 9% and 7%, respectively. Net sales declined 2% for the twelve month period ended August 4, 2001 compared to the same period in 2000.
Cost of Sales
Cost of sales, as a percentage of net sales, increased to 67.7% for the quarter ended August 4, 2001, from 66.6% for the quarter ended July 29, 2000. The increase in cost of sales as a percentage of net sales was caused by two factors: (1) lackluster consumer demand and an intense competitive environment resulting in increased promotional activity and aggressive markdowns and (2) management's continuing initiative to control and reduce inventory levels in order to maintain inventory at the desired levels. Comparable store inventories decreased by 6% from last year's second quarter. Cost of sales, as a percentage of net sales, for the six months ended August 4, 2001 and July 29, 2000 was 66.5% and 66.2%, respectively. Cost of sales for the twelve months ended August 4, 2001 and July 29, 2000 was 67.9% and 66.8%, respectively
Advertising, Selling, Administrative and General Expenses
Advertising, Selling, Administrative and General ("SG&A") expenses, as a percentage of net sales, increased to 29.4% for the quarter
ended August 4, 2001 from 28.4% for the quarter ended July 29, 2000. The increase in SG&A expenses, as a percent of net sales, is
due to a lack of sales leverage during the quarter and higher costs in payroll, advertising, utilities and insurance partially offset
by lower bad debt expense compared with the prior year quarter.
The comparable relationship between SG&A expenses and net sales for the six months ended August 4, 2001 and July 29, 2000,
respectively, was 28.8% and 27.0%, with the increase due to the factors discussed above.
Depreciation and Amortization Expense
Depreciation and amortization expense, as a percentage of net sales, increased for the three, six and twelve month periods ended August 4, 2001 compared to similar periods in 2000, due primarily to shorter weighted average lives of property and equipment in 2001 compared to 2000 and the reduced levels of sales in 2001 compared to 2000.
Rentals
Rental expense, as a percentage of net sales, for the three, six and twelve month periods ended August 4, 2001 was .9% .8% and .9%, respectively, compared to .9%, .8% and .9%, respectively, for the three, six and twelve month periods ended July 29, 2000.
Interest and Debt Expense
Interest and debt expense, as a percentage of net sales, was 2.6% and 2.5% for the three and six month periods ended August 4, 2001 compared to 3.1% and 3.0% for three and six month periods in 2000. Interest and debt expense was $48.0 and $96.2 million for the three and six month periods ended August 4, 2001 compared with $57.6 and $116.3 million for the similar periods in 2000. This reduction is due primarily to a decrease of approximately $470 million in the average amount of outstanding debt in the six month period of 2001 compared to the six month period in 2000 and to a reduction in short term interest rates from last year. Interest and debt expense, as a percentage of net sales, decreased to 2.4% for the twelve month period ended August 4, 2001 from 2.7% for the twelve month period ended July 29, 2000.
Service Charges, Interest and Other Income
Service charges, interest and other income, as a percentage of net sales, was 3.1% for the three months and six months ended August 4, 2001 compared to 3.2% and 3.1% for the three and six month periods in 2000. Service charges, interest and other income for the three months ended August 4, 2001 decreased to $57.3 million from $58.7 million for the three months ended July 29, 2000. Service charges, interest and other income for the six months ended August 4, 2001 decreased to $114.5 million from $121.9 million for the six months ended July 29, 2000. This decrease is due to a decrease in the average amount of outstanding accounts receivables during 2001 compared to 2000.
Income Taxes
The actual federal and state income tax rates for the three and six month period ended August 4, 2001 and July 29, 2000 was 36% and 37%, respectively, exclusive of the nondeductible goodwill amortization. The Company's actual federal and state income tax rate (exclusive of the effect of nondeductible goodwill amortization) was reduced from 37% in fiscal 1999 to 36% in fiscal 2000. The effect of these reduced rates on the Company's deferred income taxes was to reduce the income tax provision by $16 million for the twelve month period ended August 4, 2001.
Accounting Change
Effective the beginning of fiscal 2000, the Company changed its method of accounting for inventories under the retail inventory method. The change principally relates to the Company's accounting for allowances received from vendors, from recording such allowances directly as a reduction to cost of sales to recording such allowances as a reduction to inventoriable product cost. The cumulative effect of this accounting change reduced net income by $130 million after taxes (of $73.1 million) or $1.38 per share for the six months ended July 29, 2000. Financial statements for the three, six and twelve months ended July 29, 2000 have been restated to reflect this change in accordance with Statement of Financial Accounting Standards No. 3 "Reporting Accounting Changes in Interim Financial Statements".
Financial Condition
Cash provided by operating activities totaled $195.8 million and $362.4 million for the six months ended August 4, 2001 and July 29, 2000, respectively. The decrease in cash provided by operating activities is due primarily to a larger increase in merchandise inventories from the year end levels compared to the increase in 2000.The Company invested $140.1 million in capital expenditures for the six months ended August 4, 2001 compared to $102.4 million for the six months ended July 29, 2000. During the six months ended August 4, 2001, the Company opened three new stores, the Valley Hills Mall in Hickory, North Carolina, the Westfield Shopping Town Independence in Wilmington, North Carolina and The Shops at Willow Bend in Plano, Texas. In addition, the Company anticipates opening four new stores for the remainder of 2001, resulting in an addition of approximately 840,000 square feet of retail space. During the six months ended August 4, 2001, the Company purchased four ZCMI stores totaling 349,000 square feet of retail space and acquired eight former Montgomery Ward locations. The Clearview Mall store in New Orleans, Louisiana was closed during the six month period totaling 255,000 square feet of retail space. The Company has announced plans to close an additional three stores in 2001. The stores are located at the Great Mall of the Great Plains in Olathe, Kansas, the Mall of Memphis, in Memphis, Tennessee and the St. Louis Centre in St. Louis, Missouri. In connection with these store closings, the Company recorded store closing costs of $2.0 million for the quarter ended August 4, 2001. Cash used in financing activities totaled $196.5 million and $174.7 million for the six months ended August 4, 2001 and July 29, 2000, respectively. During the six months ended August 4, 2001 and July 29, 2000, the Company reduced its level of outstanding debt by $175.8 million and $70.3 million, respectively. During the six months ended August 4, 2001, the Company repurchased 1.3 million shares of Class A common stock for $22.3 million compared to 6.8 million shares of Class A common stock for $104 million in 2000. Management of the Company anticipates that it will be necessary to incur incremental short term borrowings of up to $300 million during periods of peak working capital demand in the third and fourth quarters of 2001. Although the Company has an unused committed line of credit in the amount of $750 million, management expects to accomplish these borrowings through the securitization of accounts receivable. Other than peak working capital requirements management believes that cash generated from operations will be sufficient to cover its reasonably foreseeable working capital, capital expenditure, stock repurchase and debt service requirements. Depending on conditions in the capital markets and other factors, the Company will from time to time consider the issuance of debt or other securities, or other possible capital market transactions, the proceeds of which could be used to refinance current indebtedness or other corporate purposes.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued two new pronouncements: Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets".
SFAS No. 141 addresses financial accounting and reporting for business combinations and supersedes APB No. 16, "Business
Combinations" and FASB Statement No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises". All business
combinations in the scope of this Statement are to be accounted for using one method, the purchase method. SFAS 141 is effective as
follows: a) use of the pooling-of-interest method is prohibited for business combinations initiated after June 30, 2001; and b) the
provisions of SFAS 141 also apply to all business combinations accounted for by the purchase method that are completed after June 30,
2001 (that is, the date of acquisition is July 2001 or later). The Company has determined that the adoption of this statement will
not have an impact on the consolidated financial statements.
SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB No. 17
"Intangible Assets". It changes the accounting for goodwill from an amortization method to an impairment only approach. SFAS No.
142 is effective for fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized in an
entity's statement of financial position at that date, regardless of when those assets were initially recognized. The Company is
currently evaluating the impact of adopting this pronouncement on its current financial statements. Application of the
nonamortization provisions of the Statement is expected to result in an annual increase in net income of $15.6 million.
Forward-Looking Information
Statements in the Management's Discussion and Analysis of Financial Condition and Results of Operations include certain "forward-looking statements", including (without limitation) statements with respect to anticipated future operating and financial performance, growth and acquisition opportunities and other similar forecasts and statements of expectation. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," and "should" and variations of these words and similar expressions, are intended to identify these forward-looking statements. The Company cautions that forward-looking statements, as such term is defined in the Private Securities Litigation Reform Act of 1995, contained in this quarterly report on Form 10-Q or made by management are based on estimates, projections, beliefs and assumptions of management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise. Forward-looking statements of the Company involve risks and uncertainties and are subject to change based on various important factors. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of risks, uncertainties and assumptions. Representative examples of those factors (without limitation) include general industry and economic conditions; economic and weather conditions for regions in which the Company's stores are located and the effect of these factors on the buying patterns of the Company's customers; changes in consumer spending patterns and debt levels; trends in personal bankruptcies; the impact of competitive market factors and other economic and demographic changes of similar or dissimilar nature; changes in operating expenses, including employee wages, commissions structures and related benefits; and the continued availability of financing in amounts and at the terms necessary to support the Company's future business.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
During the six months ended August 4, 2001, the Company repurchased $62.1 million of its outstanding unsecured notes prior to their related maturity dates. Interest rates on the repurchased securities ranged from 6.4% to 9.1%. Maturity dates ranged from 2002 to 2023. The Company also retired $100 million of its 6.17% Reset Put Securities due August 1, 2011 prior to their maturity date.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
NoneItem 2. Changes in Securities and Use of Proceeds
NoneItem 3. Defaults Upon Senior Securities
NoneItem 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the stockholders of the Company was held on May 19, 2001. The matters submitted to a
vote of the stockholders were as follows:
Votes
Votes For Votes Against Abstained
------------------- ------------------------ ---------------
Election of Directors
Class A Nominees
Robert C. Connor 69,204,518 3,251,695 0
Will D. Davis 69,201,047 3,255,166 0
John Paul Hammerschmidt 69,161,848 3,294,365 0
John H. Johnson 69,170,898 3,285,315 0
Class B Nominees
William Dillard 3,997,776 0 0
Calvin N. Clyde, Jr. 3,997,776 0 0
Drue Corbusier 3,997,776 0 0
Alex Dillard 3,997,776 0 0
William Dillard, II 3,997,776 0 0
Mike Dillard 3,997,776 0 0
James I. Freeman 3,997,776 0 0
William H. Sutton 3,997,776 0 0
Item 5. Other Information
Ratio of Earnings to Fixed Charges:
The Company has calculated the ratio of earnings to fixed charges pursuant to Item 503 of Regulation S-K of the Securities and
Exchange Act as follows:
Six Months Ended Fiscal Year Ended
---------------------------- ----------------------------------------------------------------------------
August 4, July 29, February 3, January 29, January 30, January 31, February 1,
2001 2000 2001* 2000 1999 1998 1997
-------------- ------------ ------------- -------------- --------------- -------------- --------------
1.05 1.68 1.54 2.04 1.97 3.69 3.61
============== ============ ============= ============== =============== ============== ==============
* 53 week year.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit (12): Statement re: Computation of Earnings to Fixed Charges (b) Reports of Form 8-K filed during the second quarter: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
DILLARD'S, INC.
(Registrant)
DATE: September 14, 2001 /s/James I. Freeman
James I. Freeman
Senior Vice President & Chief Financial Officer
(Principal Financial & Accounting Officer)