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 May 3, 2003
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 by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12-b-2).
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 May 3, 2003 79,570,632
CLASS B COMMON STOCK as of May 3, 2003 4,010,929
Index DILLARD'S, INC. Page PART I. FINANCIAL INFORMATION Number Item 1. Financial Statements (Unaudited): Consolidated Balance Sheets as of May 3, 2003, February 1, 2003 and May 4, 2002 3 Consolidated Statements of Operations and Retained Earnings for the Three and Twelve Month Periods Ended May 3, 2003 and May 4, 2002 4 Consolidated Statements of Cash Flows for the Three Months Ended May 3, 2003 and May 4, 2002 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosure About Market Risk 17 Item 4. Controls and Procedures 17 PART II. OTHER INFORMATION Item 1. Legal Proceedings 18 Item 2. Changes in Securities and Use of Proceeds 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 19 SIGNATURES 19 CERTIFICATIONS 20
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
DILLARD'S, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in Thousands)
May 3, February 1, May 4,
2003 2003 2002
-------------------------------------------------
Assets (Restated)
Current Assets:
Cash and cash equivalents $ 248,220 $ 142,356 $ 327,114
Accounts receivable, net 1,211,114 1,338,080 890,073
Merchandise inventories 2,005,451 1,594,308 1,903,154
Other current assets 37,355 55,507 23,948
-------------------------------------------------
Total current assets 3,502,140 3,130,251 3,144,289
Property and Equipment, net 3,287,002 3,370,502 3,428,478
Goodwill 39,214 39,214 39,214
Other Assets 159,297 135,965 228,653
-------------------------------------------------
Total Assets $ 6,987,653 $ 6,675,932 $ 6,840,634
=================================================
Liabilities and Stockholders' Equity
Current Liabilities:
Trade accounts payable and accrued expenses $ 1,040,732 $ 675,962 $ 1,012,664
Current portion of capital lease obligations 1,883 1,856 1,993
Current portion of long-term debt 137,053 138,814 99,665
Federal and state income taxes 39,950 69,829 22,915
-------------------------------------------------
Total current liabilities 1,219,618 886,461 1,137,237
Long-term Debt 2,146,047 2,193,006 2,155,240
Capital Lease Obligations 18,138 18,600 20,108
Other Liabilities 128,779 137,070 153,066
Deferred Income Taxes 673,600 645,020 647,745
Guaranteed Preferred Beneficial Interests in the
Company's Subordinated Debentures 531,579 531,579 531,579
Stockholders' Equity:
Common stock 1,167 1,167 1,163
Additional paid-in capital 711,324 711,324 701,949
Accumulated other comprehensive loss (4,496) (4,496) -
Retained earnings 2,226,633 2,205,674 2,142,020
Less treasury stock, at cost (664,736) (649,473) (649,473)
-------------------------------------------------
Total stockholders' equity 2,269,892 2,264,196 2,195,659
-------------------------------------------------
Total Liabilities and Stockholders' Equity $ 6,987,653 $ 6,675,932 $ 6,840,634
=================================================
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 Twelve Months Ended
------------------------------ -----------------------------
May 3, May 4, May 3, May 4,
2003 2002 2003 2002
------------- --------------- -------------- --------------
(Restated) (Restated)
Net Sales $1,813,911 $1,910,879 $7,814,028 $8,145,481
Service Charges, Interest and Other Income 77,415 63,395 336,963 247,938
------------- --------------- -------------- --------------
1,891,326 1,974,274 8,150,991 8,393,419
------------- --------------- -------------- --------------
Costs and Expenses:
Cost of sales 1,211,972 1,226,428 5,239,678 5,481,123
Advertising, selling, administrative
and general expenses 509,683 519,719 2,153,997 2,169,577
Depreciation and amortization 74,027 77,367 298,067 310,926
Rentals 14,170 15,222 67,049 72,207
Interest and debt expense 43,425 44,736 188,468 190,862
Asset impairment and store closing charges - - 52,224 3,752
------------- --------------- -------------- --------------
Total Costs and Expenses 1,853,277 1,883,472 7,999,483 8,228,447
------------- --------------- -------------- --------------
Income before Income Taxes 38,049 90,802 151,508 164,972
Income Taxes 13,700 32,690 53,345 64,055
------------- --------------- -------------- --------------
Income Before Cumulative Effect of Accounting Change 24,349 58,112 98,163 100,917
Cumulative Effect of Accounting Change - (530,331) - (530,331)
------------- --------------- -------------- --------------
Net Income (Loss) 24,349 (472,219) 98,163 (429,414)
Retained Earnings at Beginning
of Period 2,205,674 2,617,608 2,142,020 2,584,600
------------- --------------- -------------- --------------
2,230,023 2,145,389 2,240,183 2,155,186
Cash Dividends Declared (3,390) (3,369) (13,550) (13,166)
------------- --------------- -------------- --------------
Retained Earnings at End of Period $2,226,633 $2,142,020 $ 2,226,633 $ 2,142,020
============= =============== ============== ==============
Basic Earnings Per Share:
Income Before Cumulative Effect of Accounting Change $0.29 $0.69 $1.16 $1.20
Cumulative Effect of Accounting Change - (6.30) - (6.32)
------------- --------------- -------------- --------------
Net Income (Loss) $0.29 $(5.61) $1.16 $(5.12)
============= =============== ============== ==============
Diluted Earnings Per Share:
Income Before Cumulative Effect of Accounting Change $0.29 $0.68 $1.15 $1.20
Cumulative Effect of Accounting Change - (6.24) - (6.29)
------------- --------------- -------------- --------------
Net Income (Loss) $0.29 $(5.56) $1.15 $(5.09)
============= =============== ============== ==============
Cash Dividends Declared Per
Common Share $0.04 $0.04 $0.16 $0.16
See notes to consolidated financial statements.
DILLARD'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
Three Months Ended
--------------------------------
May 3, May 4,
2003 2002
-------------- ---------------
(Restated)
Operating Activities:
Net income (loss) $ 24,349 $ (472,219)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 75,811 78,087
Cumulative effect of accounting change - 530,331
Provision for loan losses 12,617 7,199
Gain on the sale of joint venture (15,624) -
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 113,938 77,668
Increase in merchandise inventories and other current assets (393,425) (340,492)
(Increase) decrease in other assets (32,904) 5,416
Increase in trade accounts payable and accrued expenses,
other liabilities and income taxes 355,819 206,785
-------------- ---------------
Net cash provided by operating activities 140,581 92,775
-------------- ---------------
Investing Activities:
Net proceeds from sale of joint venture 34,579 -
Purchases of property and equipment (41,488) (50,130)
-------------- ---------------
Net cash used in investing activities (6,909) (50,130)
-------------- ---------------
Financing Activities:
Principal payments on long-term debt and capital lease obligations (9,155) (7,972)
Proceeds from long-term debt borrowings - 40,000
Proceeds from receivable financing, net - 100,000
Proceeds from issuance of common stock - 2,850
Cash dividends paid (3,390) (3,369)
Purchase of treasury stock (15,263) -
-------------- ---------------
Net cash (used in) provided by financing activities (27,808) 131,509
-------------- ---------------
Increase in Cash and Cash Equivalents 105,864 174,154
Cash and Cash Equivalents, Beginning of Period 142,356 152,960
-------------- ---------------
Cash and Cash Equivalents, End of Period $ 248,220 $ 327,114
============== ===============
See notes to consolidated financial statements.
DILLARD'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
May 3, 2003
Note 1. Basis of Presentation
| The accompanying unaudited consolidated financial statements of Dillard’s, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, each as promulgated under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Certain prior period balances have been reclassified to conform to current period presentation and to reflect the adoption of certain new accounting standards as discussed in Note 9. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and twelve month periods ended May 3, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2004 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 1, 2003. |
Note 2. Accounts Receivable Securitization
| The Company utilizes securitizations of its credit card receivable portfolio as a financing vehicle. The Company has historically accounted for these transactions as off-balance-sheet financing. However, in early May 2002, the Company amended its conduit financing agreement in a manner that prevented future transfers of accounts receivable from qualifying as a sale and thus receiving off-balance-sheet treatment. As a result of this decision, the Company records all financing through this facility on the balance sheet. At May 4, 2002, the Company had $400 million of off-balance-sheet financing associated with its securitizations. At May 3, 2003, the Company had $400 million in receivable financing outstanding that was classified in long-term debt. The Company has reclassified $1.4 million and $9.8 million related to its receivable financing from other revenue to interest expense for the quarter and twelve months ended May 4, 2002, respectively. |
Note 3. Goodwill
| The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” effective February 3, 2002. It changes the accounting for goodwill from an amortization method to an “impairment only” approach. Under SFAS No. 142, goodwill is no longer amortized but reviewed for impairment annually or more frequently if certain indicators arise. The Company tested goodwill for impairment as of the adoption date using the two-step process prescribed in SFAS No. 142. The Company identified its reporting units under SFAS No. 142 at the store unit level. The fair value of these reporting units was estimated using the expected discounted future cash flows and market values of related businesses, where appropriate. |
| Related to the 1998 acquisition of Mercantile Stores Company Inc., the Company had $570 million in goodwill recorded in its consolidated balance sheet at the beginning of 2002. The Company completed the required impairment tests of goodwill in the second quarter of 2002 and determined that $530 million of goodwill was impaired under the fair value test. This impairment was the result of sequential periods of declining profits in certain of these reporting units.The cumulative effect of the accounting change as of February 3, 2002 was to decrease net income for the three months ended May 4, 2002 by $530 million or $6.24 per diluted share. Financial statements for the quarter ended May 4, 2002 have been restated to reflect this change in accordance with SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements”. |
| The following adjusted financial information is presented as if the statement was adopted at February 4, 2001(in thousands, except per share amounts): |
Three Months Ended Twelve Months Ended
May 3, May 4, May 3, May 4,
2003 2002 2003 2002
------------ -------------- ----------- -------------
Reported net income (loss) $24,349 $(472,219) $98,163 $(429,414)
Cumulative effect of accounting change - 530,331 - 530,331
------------ -------------- ----------- -------------
Net income before the cumulative effect of
accounting change 24,349 58,112 98,163 100,917
Add back:
Goodwill amortization - - - 11,703
------------ -------------- ----------- -------------
Adjusted net income $24,349 $58,112 $98,163 $112,620
============ ============== =========== =============
Net income (loss) per share reported - basic $0.29 $(5.61) $1.16 $(5.12)
Cumulative effect of accounting change - 6.30 - 6.32
Goodwill amortization - - - 0.14
------------ -------------- ----------- -------------
Adjusted net income per share - basic $0.29 $0.69 $1.16 $ 1.34
============ ============== =========== =============
Net income (loss) per share reported -- diluted $0.29 $(5.56) $1.15 $ (5.09)
Cumulative effect of accounting change - 6.24 - 6.29
Goodwill amortization - - - 0.14
------------ -------------- ----------- -------------
Adjusted net income per share - diluted $0.29 $0.68 $1.15 $ 1.34
============ ============== =========== =============
Note 4. Sale of Joint Venture and Credit Associated with the Mercantile Acquisition
| During the quarter ended May 4, 2002, a joint venture of the Company borrowed $40.0 million. The mortgage note was non-recourse with building, land and improvements of Sunrise Mall in Brownsville, Texas pledged as collateral. The variable rate mortgage note paid interest only at the one month LIBOR plus 3% on a monthly basis with the entire unpaid principal balance due and payable on May 4, 2004. |
| During the quarter ended May 3, 2003, the Companysold its interest in the Sunrise Mall and its associated center in Brownsville, Texas for $80.7 million including the assumption of the $40.0 million mortgage note. The net assets, excluding the assumed debt, of the mall property were approximately $58.4 million and were included as a non-cash item in the consolidated statement of cash flows. The Company recorded a pretax gain of $15.6 million pertaining to the sale of its interest in Sunrise Mall for the three months ended May 3, 2003. |
| During the quarter ended May 3, 2003, the Company recorded a $12.3 million pretax credit due to the resolution of certain liabilities originally recorded in conjunction with the purchase of Mercantile Stores Company, Inc. |
Note 5. Common Stock Repurchase and Note Repurchase
| For the three months ended May 3, 2003, the Company repurchased approximately 1.2 million shares of Class A Common Stock valued at approximately $15.3 million under its existing $200 million share repurchase authorization. Approximately $60 million in share repurchase authorization remained under this open-ended plan at May 3, 2003. |
| During the quarter ended May 3, 2003 and May 4, 2002, the Company repurchased $6.0 million and $6.1 million, respectively, of its outstanding unsecured notes prior to their related maturity dates. Interest rates on the repurchased securities ranged from 6.4% to 6.9% and 6.4% to 9.1% for the quarters ended May 3, 2003 and May 4, 2002, respectively. Maturity dates ranged from 2004 to 2005 and 2004 to 2023 for the quarters ended May 3, 2003 and May 4, 2002, respectively. No gain or loss resulted from the repurchase of the unsecured notes during the quarter ended May 3, 2003. A gain of $544,000 resulted from the repurchase of the unsecured notes during the quarter ended May 4, 2002 and has been reclassified to interest and debt expense from extraordinary gain as described in Note 9. |
Note 6. 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 Twelve Months Ended
May 3, May 4, May 3, May 4,
2003 2002 2003 2002
------------------------ ------------------------
Basic:
Income before cumulative effect of accounting change $ 24,349 $ 58,112 $98,163 $ 100,917
Cumulative effect of accounting change - (530,331) - (530,331)
------------------------ ------------------------
Net income (loss) available for
per-share calculations $ 24,349 $(472,219) $98,163 $(429,414)
======================== ========================
Weighted average shares of common stock outstanding 84,486 84,100 84,609 83,836
======================== ========================
Per Share of Common Stock
Income before cumulative effect of accounting change $ 0.29 $ 0.69 $ 1.16 $1.20
Cumulative effect of accounting change - (6.30) - (6.32)
------------------------ ------------------------
Net income (loss) $ 0.29 $ (5.61) $ 1.16 $ (5.12)
======================== ========================
Three Months Ended Twelve Months Ended
May 3, May 4, May 3, May 4,
2003 2002 2003 2002
------------------------- ------------------------
Diluted:
Income before cumulative effect of accounting change $ 24,349 $ 58,112 $98,163 $ 100,917
Cumulative effect of accounting change - (530,331) - (530,331)
------------------------- ------------------------
Net income (loss) available for
per-share calculations $ 24,349 $ (472,219) $98,163 $(429,414)
========================= ========================
Weighted average shares of common stock outstanding 84,486 84,100 84,609 83,836
Stock options 209 887 634 536
------------------------- ------------------------
Total weighted average equivalent shares 84,695 84,987 85,243 84,372
========================= ========================
Per Share of Common Stock
Income before cumulative effect of accounting change $ 0.29 $ 0.68 $ 1.15 $ 1.20
Cumulative effect of accounting change - (6.24) - (6.29)
------------------------- ------------------------
Net income (loss) $ 0.29 $ (5.56) $ 1.15 $ (5.09)
========================= ========================
| Total stock options outstanding were 10,581,237 and 10,547,039 at May 3, 2003 and May 4, 2002, respectively. Of these, options to purchase 9,280,488 and 6,479,416 shares of Class A common stock at prices ranging from $15.74 to $40.22 and $25.13 to $40.22 per share were outstanding at May 3, 2003 and May 4, 2002, respectively, but were not included in the computation of diluted earnings per share because they would be antidilutive. |
Note 7. Stock-Based Compensation
| The Company periodically grants stock options to employees. Pursuant to Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” the Company accounts for stock-based employee compensation arrangements using the intrinsic value method. Accordingly, no compensation expense has been recorded in the consolidated financial statements with respect to option grants. The Company has adopted only the disclosure provisions of SFAS No. 123, “Accounting for Stock Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock Based Compensation – Transition and Disclosure, an Amendment of FASB Statement No. 123". If compensation cost for the Company’s stock option plans had been determined in accordance with the fair value method prescribed by SFAS No. 123, the Company’s income before cumulative effect of accounting change would have been (in thousands, except per share data): |
Three Months Ended Twelve Months Ended
May 3, May 4, May 3, May 4,
2003 2002 2003 2002
----------- ------------- ------------- -----------
Income Before Cumulative Effect of Accounting Change:
As reported $24,349 $58,112 $98,163 $100,917
Deduct: Total stock based employee compensation expense
determined under fair value based method, net of taxes (870) (541) (8,276) (3,266)
----------- ------------- ------------- -----------
Pro forma $23,479 $57,571 $89,887 $97,651
=========== ============= ============= ===========
Basic Earnings Per Share:
As reported $0.29 $0.69 $1.16 $1.20
Pro forma 0.28 0.68 1.06 1.16
----------- ------------- ------------- -----------
Diluted Earnings Per Share:
As reported $0.29 $0.68 $1.15 $1.20
Pro forma 0.28 0.68 1.05 1.16
----------- ------------- ------------- -----------
Note 8. Comprehensive Income and Accumulated Other Comprehensive Loss
| Accumulated other comprehensive loss only consists of the minimum pension liability, which is calculated annually in the fourth quarter. The following table shows the computation of comprehensive income (in thousands): |
Three Months Ended Twelve Months Ended
May 3, May 4, May 3, May 4,
2003 2002 2003 2002
-------------- ------------- ------------ --------------
Net Income (Loss) $24,349 $(472,219) $98,163 $(429,414)
Other Comprehensive Loss:
Minimum pension liability adjustment, net of taxes - - (4,496) -
-------------- ------------- ------------ --------------
Total Comprehensive Income (Loss) $24,349 $(472,219) $93,667 $(429,414)
============== ============= ============ ==============
Note 9. Recently Issued Accounting Standards
| In April 2002, SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections” was issued. SFAS No. 145 rescinds SFAS No. 4 and 64, which required gains and losses from extinguishments of debt to be classified as extraordinary items. SFAS No. 145 also amends SFAS No. 13, eliminating inconsistencies in certain sale-leaseback transactions. The Company adopted the provisions of SFAS No. 145 as of February 2, 2003. For the quarter and twelve months ended May 4, 2002, as a result of adopting SFAS No. 145, the Company has reclassified $544,000 and $5,011,000 ($348,000 and $3,201,000 after-tax) to interest and debt expense from extraordinary gain. For the twelve months ended May 3, 2003, the Company has reclassified $7,378,000 ($4,722,000 after-tax) to interest and debt expense from extraordinary loss. |
| In March 2003, the Financial Accounting Standards Board’s (“FASB”) Emerging Issues Task Force (“EITF”) issued final transition guidance regarding accounting for vendor allowances in its Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor”. EITF Issue No. 02-16 addresses the accounting treatment for vendor allowances and stipulates that cash consideration received from a vendor should be presumed to be a reduction of the prices of the vendors’ product and should therefore be shown as a reduction in the purchase price of the merchandise. Further, these allowances should be recognized as a reduction in cost of sales when the related product is sold. To the extent that the cash consideration represents a reimbursement of a specific, incremental and identifiable cost, then those vendor allowances should offset such costs. The Company receives concessions from its vendors through a variety of programs and arrangements, including co-operative advertising and markdown reimbursement programs. Co-operative advertising allowances are reported as a reduction of advertising expense in the period in which the advertising occurred. All other vendor allowances are recognized as a reduction of cost purchases. Accordingly, a reduction or increase in vendor concessions has an inverse impact on cost of sales and/or selling and administrative expenses. |
| The adoption of EITF Issue No. 02-16 in 2003 did not have a material impact on the Company’s financial position or results of operations. |
| In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” This statement establishes standards for how a company classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The statement will be implemented by reporting the cumulative effect of a change in accounting principle for financial instruments created before the issuance date of the statement and still existing at the beginning of the period of adoption. We are still in the process of reviewing the new statement. |
| FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of APB No. 50" (“FIN 46”) was issued in January 2003. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company does not currently participate in any variable interest entities. |
Item 2. Management’s Discussion And Analysis Of FinancialCondition
And Results Of Operations
General
Net Sales. Net sales include sales of comparable stores, non-comparable stores and lease income on leased departments. Comparable store sales include sales for those stores which were in operation for a full period in both the current month and the corresponding month for the prior year. Non-comparable store sales include sales in the current fiscal year from stores opened during the previous fiscal year before they are considered comparable stores, sales from new stores opened in the current fiscal year and sales in the previous fiscal year for stores that were closed in the current fiscal year.
Service Charges, Interest and Other Income.Service Charges, Interest and Other Income include interest and service charges, net of service charge write-offs, related to the Company’s proprietary credit card sales. Other income relates to joint ventures accounted for by the equity method, rental income, shipping and handling fees and gains (losses) on the sale of property and equipment and joint ventures.
Cost of Sales.Cost of sales includes the cost of merchandise sold, bank card fees, freight to the distribution centers, employee and promotional discounts, non-specific vendor allowances and direct payroll for salon personnel.
Advertising, selling, administrative and general expenses.Advertising, selling, administrative and general expenses include buying and occupancy, selling, distribution, warehousing, store management and corporate expenses, including payroll and employee benefits, insurance, employment taxes, advertising, management information systems, legal, bad debt costs and other corporate level expenses. Buying expenses consist of payroll, employee benefits and travel for design, buying and merchandising personnel.
Depreciation and amortization.Depreciation and amortization expenses include depreciation on property and equipment and amortization of goodwill prior to February 3, 2002.
Rentals. Rentals include expenses for store leases and data processing equipment rentals.
Interest and debt expense.Interest and debt expense includes interest relating to the Company’s unsecured notes, mortgage notes, credit card receivables financing, the guaranteed beneficial interests in the Company’s subordinated debentures, gains and losses on note repurchases, amortization of financing intangibles and interest on capital lease obligations.
Asset impairment and store closing charges.Asset impairment and store closing charges consist of write downs to fair value of under-performing properties including property and equipment and exit costs associated with the closure of certain stores. Exit costs include future rent, taxes and common area maintenance expenses from the time the stores are closed.
Cumulative effect of accounting change.Effective February 3, 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 142 changes the accounting for goodwill from an amortization method to an “impairment only” approach. Under SFAS No. 142, goodwill is no longer amortized but reviewed for impairment annually or more frequently if certain indicators arise. The Company tested goodwill for impairment as of the adoption date using the two-step process prescribed in SFAS No. 142. The Company identified its reporting units under SFAS No. 142 at the store unit level. The fair value of these reporting units was estimated using the expected discounted future cash flows and market values of related businesses, where appropriate. The cumulative effect of the accounting change as of February 3, 2002 was to decrease net income for the three months and twelve months ended May 4, 2002 by $530 million or $6.24 and $6.29 per diluted share, respectively.
Critical Accounting Policies and Estimates
The Company’s accounting policies are more fully described in Note 1 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2003. As disclosed in this note, the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, actual results will differ from those estimates. The Company evaluates its estimates and judgments on an ongoing basis and predicates those estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results will differ from these under different assumptions or conditions.
Management of the Company believes the following critical accounting policies significantly affect its judgments and estimates used in preparation of the consolidated financial statements.
Merchandise inventory.Approximately 97% of the inventories are valued at lower of cost or market using the retail last-in, first-out (“LIFO”) inventory method. Under the retail inventory method (“RIM”), the valuation of inventories at cost and the resulting gross margins are calculated by applying a calculated cost to retail ratio to the retail value of inventories. RIM is an averaging method that has been widely used in the retail industry due to its practicality. Additionally, it is recognized that the use of RIM will result in valuing inventories at the lower of cost or market if markdowns are currently taken as a reduction of the retail value of inventories. Inherent in the RIM calculation are certain significant management judgments including, among others, merchandise markon, markups, and markdowns, which significantly impact the ending inventory valuation at cost as well as the resulting gross margins. Management believes that the Company’s RIM provides an inventory valuation which results in a carrying value at the lower of cost or market. The remaining 3% of the inventories are valued at lower of cost or market using the specific identified cost method.
Allowance for doubtful accounts. The accounts receivable from the Company’s proprietary credit card sales are subject to credit losses. The Company maintains allowances for uncollectible accounts for estimated losses resulting from the inability of its customers to make required payments. The adequacy of the allowance is based on historical experience with similar customers including bankruptcy and write-off trends, current aging information and year-end balances. Management believes that the allowance for uncollectible accounts is adequate to cover anticipated losses in the reported credit card receivable portfolio under current conditions; however, significant deterioration in any of the above-noted factors or in the overall health of the economy could materially change these expectations.
Vendor Allowances.The Company receives concessions from its vendors through a variety of programs and arrangements, including co-operative advertising and markdown reimbursement programs. Co-operative advertising allowances are reported as a reduction of advertising expense in the period in which the advertising occurred. All other vendor allowances are recognized as a reduction of cost purchases. Accordingly, a reduction or increase in vendor concessions has an inverse impact on cost of sales and/or selling and administrative expenses.
The Financial Accounting Standards Board’s Emerging Issues Task Force (“EITF”) Issue No. 02-16, “Accounting By A Customer (Including A Reseller) For Cash Consideration Received From A Vendor” addressed the accounting treatment for vendor allowances. The adoption of EITF Issue No. 02-16 in 2003 did not have a material impact on the Company’s financial position or results of operations.
Self insurance accruals. The Company purchases third-party insurance for workers’ compensation, automobile, product and general liability claims that exceed a certain level. However, the Company is responsible for the payment of claims below these insured limits. In estimating the obligation associated with incurred losses, the Company utilizes loss development factors. These development factors utilize historical data to project the future development of incurred losses. Loss estimates are adjusted based upon actual claims settlements and reported claims.
Finite-lived assets. In the evaluation of the fair value and future benefits of finite-lived assets, the Company performs an analysis of the anticipated undiscounted future net cash flows of the related long-lived assets. If the carrying value of the related asset exceeds the undiscounted cash flows, the carrying value is reduced to its fair value. Various factors including future sales growth and profit margins are included in this analysis. To the extent these future projections or our strategies change, the conclusion regarding impairment may differ from the current estimates.
Goodwill. The Company evaluates goodwill annually or whenever events and changes in circumstances suggest that the carrying amount may not be recoverable from its estimated future cash flows. To the extent these future projections or our strategies change, the conclusion regarding impairment may differ from the current estimates.
Stock Options.The Compensation Committee of the Board of Directors periodically grants employees of the Company stock options. As allowed under GAAP, the Company does not record any compensation expense on the income statement with respect to options granted to employees. Alternatively, under GAAP, the Company could have recorded a compensation expense based on the fair value of employee stock options. As described in Note 7 in the consolidated financial statements, had the Company recorded a fair value-based compensation expense for stock options, diluted earnings per share would have been $0.01 and $0.00, less than what was reported for the three months ended May 3, 2003 and May 4, 2002, respectively, and $0.10 and $0.04 less than what was reported for the twelve months ended May 3, 2003 and May 4, 2002, respectively.
Income Taxes. The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which requires that deferred tax assets and liabilities be recognized using enacted rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities in the multiple taxing jurisdictions within which the Company operates. Future tax law changes may require adjustment to the Company’s existing tax assets and liabilities.
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 Twelve Months Ended
May 3, May 4, May 3, May 4,
2003 2002 2003 2002
----------- ---------- ----------- -----------
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 66.8 64.2 67.0 67.3
----------- ---------- ----------- -----------
Gross profit 33.2 35.8 33.0 32.7
Advertising, selling, administrative
and general expenses 28.1 27.2 27.6 26.6
Depreciation and amortization 4.1 4.1 3.8 3.8
Rentals 0.8 0.8 0.9 0.9
Interest and debt expense 2.4 2.3 2.4 2.4
Asset impairment and store closing
charges - - 0.7 -
----------- ---------- ----------- -----------
Total operating expenses 35.4 34.4 35.4 33.7
Service charges, interest and other 4.3 3.3 4.3 3.0
income
----------- ---------- ----------- -----------
Income before income taxes 2.1 4.7 1.9 2.0
Income taxes 0.8 1.7 0.6 0.8
----------- ---------- ----------- -----------
Income before cumulative effect of
accounting change 1.3 3.0 1.3 1.2
Cumulative effect of accounting change - (27.7) - (6.5)
----------- ---------- ----------- -----------
Net income (loss) 1.3 % (24.7) % 1.3 % (5.3) %
=========== ========== =========== ===========
Net Sales
Net sales declined 5% on a total basis and a comparable store basis for the three month period ended May 3, 2003, compared to the three month period ended May 4, 2002. Sales performance was strongest in accessories, shoes and lingerie during the first quarter of 2003. Sales in accessories, shoes and lingerie were well above the Company average sales trend of a 5% decline for the period. Sales in children’s and cosmetics were slightly above the average trend, while sales in women’s and juniors and home were slightly below trend. Sales in the men’s area were below average.Net sales decreased 4% for the twelve month period ended May 3, 2003 compared to the same period in 2002. These decreases were primarily due to decreases in comparable store sales.
Cost of Sales
Cost of sales, as a percent of net sales, was 66.8% and 67.0% for the three and twelve month periods ended May 3, 2003 compared to 64.2% and 67.3% for the three and twelve month periods ended May 4, 2002. The increase of 260 basis points in cost of sales as a percentage of net sales for the three months ended May 3, 2003 is attributable to significantly higher markdown levels during the quarter as the Company worked to control inventory levels in a challenging retail environment marked by weak consumer demand.
Comparable store inventory at May 3, 2003 increased 6% compared to May 4, 2002. This follows an 11% inventory decline at May 4, 2002 compared to May 5, 2001.
Advertising, Selling, Administrative and General Expenses
Advertising, selling, administrative and general expenses (“SG&A expenses”) for the three months ended May 3, 2003 decreased $10 million compared with May 4, 2002. SG&A expenses, as a percentage of net sales, were 28.1% and 27.6% for the three and twelve month periods ended May 3, 2003 compared to 27.2% and 26.6% for the comparable 2002 periods.
SG&A expenses for the three months ended May 3, 2003 include a $12.3 million pretax credit recorded due to the resolution of certain liabilities originally recorded in conjunction with the purchase of Mercantile Stores Company, Inc. In addition, savings in payroll expense was offset by increases in other expense areas including a $6.7 million increase in bad debt expense.
Depreciation and Amortization Expense
Depreciation and amortization expense as a percentage of sales was unchanged at 4.1% and 3.8% for the three and twelve month periods ended May 3, 2003, respectively, compared to similar periods in 2002. The twelve month period ended May 4, 2002 contained an additional $11.7 million in goodwill amortization. Goodwill is no longer amortized subsequent to the adoption of SFAS No. 142 on February 3, 2002.
Rentals
Rental expense, as a percent of net sales, remained flat at 0.8% and 0.9%, respectively, for the three and twelve month periods ended May 3, 2003, compared to the three and twelve month periods ended May 4, 2002.
Interest and Debt Expense
Interest and debt expense for the three months ended May 3, 2003 decreased to $43.4 million or 2.4% of net sales compared to $44.7 million or 2.3% of net sales for the three months ended May 4, 2002. This reduction is due primarily to a decrease in the average amount of outstanding debt in the first quarter of 2003 compared to the first quarter of 2002 and to a reduction in short term interest rates from last year’s first quarter.
Interest and debt expense, as a percent of net sales, was 2.4% for the twelve month periods ended May 3, 2003 and May 4, 2002, respectively.
The Company adopted the provisions of SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections” as of February 2, 2003. For the quarter and twelve months ended May 4, 2002, as a result of adopting SFAS No. 145, the Company has reclassified $544,000 and $5,011,000 to interest and debt expense from extraordinary gain. For the twelve months ended May 3, 2003, the Company has reclassified $7,378,000 to interest and debt expense from extraordinary loss.
The Company has reclassified $1.4 million and $9.8 million related to its receivable financing from other revenue to interest expense for the three and twelve months ended May 4, 2002, respectively.
Service Charges, Interest and Other Income
Service charges, interest and other income for the three months ended May 3, 2003 increased to $77.4 million or 4.3% of net sales compared to $63.4 million or 3.3% of net sales for the three months ended May 4, 2002. Included in service charges, interest and other income for the three months ended May 3, 2003 is a pretax gain of $15.6 million pertaining to the Company’s sale of its interest in Sunrise Mall and its associated center in Brownsville, Texas. Dillard’s sold its interest in the property for $80.7 million including the assumption of $40.0 million of long-term debt during the first quarter of 2003.
Income Taxes
The actual federal and state income tax rate for the three month periods ended May 3, 2003 and May 4, 2002 was 36%.
Accounting Change
For the three months ended May 4, 2002, the Company recorded a non-cash charge of $530 million for the write-off of goodwill in accordance with the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets”.The Company tested its goodwill for impairment using the two-step process prescribed in SFAS No. 142. The fair value of the Company’s reporting units was estimated using the expected discounted future cash flows and market values of related businesses, where appropriate. The Company completed the required impairment tests of goodwill in the second quarter of 2002 and determined that $530 million of goodwill was impaired under the fair value test. In accordance with SFAS No. 142, the Company restated its results for the first quarter ended May 4, 2002 to reflect the resulting $530 million non-cash goodwill impairment charge as a cumulative effect of a change in accounting principle.
Financial Condition
Cash provided by operating activities totaled $140.6 million and $92.8 million for the three months ended May 3, 2003 and May 4, 2002, respectively. The increase in operating cash flow for the three months in 2003 is due to a significantly larger increase in the amount of accounts payable from year end levels and a larger decrease in accounts receivable partially offset by a larger increase in inventories from year end levels. Comparable store inventories increased 6% from last year’s first quarter levels.
The Company invested $41.5 million in capital expenditures for the three months ended May 3, 2003 compared to $50.1 million for the three months ended May 4, 2002.
The Company recorded a gain of $15.6 million and received net cash proceeds of $34.6 million from the sale of its interest in Sunrise Mall and its associated center in Brownsville, Texas. The purchaser also assumed $40 million in debt related to the sale.
During the three months ended May 3, 2003, the Company opened its newly constructed 220,000 square foot location at Great Northern Mall in North Olmstead, Ohio, near Cleveland. The Company anticipates opening an additional four new stores in 2003, resulting in an addition of approximately 553,000 square feet of retail space net of replaced square footage. The Company closed three store locations totaling 634,000 square feet during the quarter.
Cash used in financing activities for the three months ended May 3, 2003 totaled $27.8 million compared to cash provided of $131.5 million for the three months ended May 4, 2002. During the three months ended May 4, 2002, the Company issued $40 million of variable rate mortgage notes due 2004. The Company sold an additional $100 million in accounts receivable securitization bringing the total accounts receivable securitizations sold and excluded from the balance sheet at May 4, 2002 to $400 million. During the quarters ended May 3, 2003 and May 4, 2002, the Company repurchased $6.0 million and $6.1 million, respectively, of its outstanding unsecured notes prior to their related maturity dates.
During the three months ended May 3, 2003, the Company repurchased approximately 1.2 million shares of Class A common stock for approximately $15.3 million under its existing $200 million share repurchase authorization. Approximately $60 million in share repurchase authorization remained under this open-ended plan at May 3, 2003.
Management of the Company anticipates that it will be necessary to incur additional short-term borrowings during periods of peak working capital demand in the fourth quarter of 2003. Although the Company has an unused committed line of credit in the amount of $400 million, management expects to accomplish these borrowings principally through its accounts receivable conduit facilities. Accounts receivable conduit facilities totaling $500 million were available to the Company with none utilized at May 3, 2003. Management expects its accounts receivable conduit facilities to meet peak borrowing demand. 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.
There have been no material changes in the information set forth under caption “Contractual Obligations and Commercial Commitments” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2003.
New Accounting Standards
In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” This statement establishes standards for how a company classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The statement will be implemented by reporting the cumulative effect of a change in accounting principle for financial instruments created before the issuance date of the statement and still existing at the beginning of the period of adoption. We are still in the process of reviewing the new statement.
FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of APB No. 50” (“FIN 46”) was issued in January 2003. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company does not currently participate in any variable interest entities.
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, financing requirements and other similar forecasts and statements of expectation. Words such as “expects,” “anticipates,” “plans” and “believes,” 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 report, the Company’s annual report on Form 10-K, 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 retail industry conditions and macro-economic conditions; economic and weather conditions for regions in which the Company’s stores are located and the effect of these factors on the buying patterns of the Company’s customers; the impact of competitive pressures in the department store industry and other retail channels including specialty, off-price, discount, internet, and mail-order retailers; trends in personal bankruptcies and charge-off trends in the credit card receivables portfolio; changes in consumer spending patterns and debt levels; adequate and stable availability of materials and production facilities from which the Company sources its merchandise; changes in operating expenses, including employee wages, commission structures and related benefits; possible future acquisitions of store properties from other department store operators and the continued availability of financing in amounts and at the terms necessary to support the Company’s future business; potential disruption from terrorist activity and the effect on ongoing consumer confidence; potential disruption of international trade and supply chain efficiencies; world conflict and the possible impact on consumer spending patterns and other economic and demographic changes of similar or dissimilar nature.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
During the quarter ended May 3, 2003, the Company repurchased $6.0 million of its outstanding unsecured notes prior to their related maturity dates. Interest rates on the repurchased securities ranged from 6.4% to 6.9%. Maturity dates ranged from 2004 to 2005.
Except as disclosed above, there have been no material changes in the information set forth under caption “Item 7A-Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2003.
Item 4. Controls and Procedures
The Company maintains “disclosure controls and procedures”, as such term is defined in Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the Company’s reports, pursuant to the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding the required disclosures. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
The Company’s management, including William Dillard, II, Chairman of the Board of Directors and Chief Executive Officer (principal executive officer) and James I. Freeman, Senior Vice-President and Chief Financial Officer (principal financial officer), have evaluated the effectiveness of the Company’s “disclosure controls and procedures”, within 90 days of the filing date of this Quarterly Report on Form 10-Q. Based on their evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date the controls were evaluated.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
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:
Three Months Ended Fiscal Years Ended
- ---------------------------- ----------------------------------------------------------------------------
May 3, May 4, February 3, February 2, February 3, January 29, January 30,
2003 2002 2003 2002 2001* 2000 1999
- -------------- ------------ ------------- -------------- --------------- -------------- --------------
1.77 2.81 2.00 1.46 1.51 2.00 1.97
============== ============ ============= ============== =============== ============== ==============
* 53 week year.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
10 Dillards, Inc. Amended and Restated Corporate Officers Non-Qualified Pension Plan
12 Statement re: Computation of Earnings to Fixed Charges
99(a) Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350).
99(b) Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350).
(b) Reports of Form 8-K filed during the first 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:June 17, 2003 /s/ James I. Freeman
James I. Freeman
Senior Vice-President & Chief Financial Officer
(Principal Financial and Accounting Officer)
CERTIFICATIONS
I, William Dillard, II, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dillard's, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly
report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date
within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal controls which could
adversely affect the registrant's ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal controls; and;
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there
were significant changes in internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: June 17, 2003
/s/ William Dillard, II
William Dillard, II
Chairman of the Board and Chief Executive Officer
I, James I. Freeman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dillard's, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly
report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date
within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal controls which could
adversely affect the registrant's ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal controls; and;
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there
were significant changes in internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: June 17, 2003
/s/ James I. Freeman
James I. Freeman
Senior Vice-President and Chief Financial Officer