1996
Dillard's Annual Report
Dillard's The Corporation
Founded in 1938 by William Dillard, Dillard Department Stores, Inc. is a
regional group of traditional department stores offering a distinctive mix of
name-brand and private-label merchandise. With everyday pricing and special
emphasis on fashion apparel and home furnishings, Dillard's appeals to middle-
and upper-middle-income consumers. The Company's philosophy continues to embrace
an ambitious program of expansion and remodeling as well as aggressive responses
to industry trends in merchandise and pricing.
Table of Contents
3 Letter to the Stockholders
7 Narrative
11 New Stores and Expansions
17 Corporate Organization
18 Operating Divisions
21 Financial Review
Message to Dillard's
Stockholders
In 1996, Dillard's sales climbed to $6.2 billion. This shows a 5% increase over
our $5.9 billion in sales for fiscal 1995, which included 53 weeks. Using an
equivalent 52-week basis, sales rose 7%. By the same measure, sales in
comparable stores increased 2%. Net income for 1996 was $238.6 million versus
$167.1 in 1995. Net income per share was $2.09 versus $1.48. Earnings for 1995
included a non-cash after-tax asset impairment charge of $78.5 million
($.69 per share). Stockholders' equity increased to $2.7 billion in 1996
from $2.5 billion in 1995.
Our store opening schedule for 1996 was the most aggressive in the history of
the Company. We opened 16 new stores, one of which was a replacement store.
These stores were located in Naples, Florida; Lake Wales, Florida; Henderson,
Nevada; El Paso, Texas; Sarasota, Florida; Sugar Land, Texas; Alpharetta,
Georgia; Columbia, South Carolina; Albuquerque, New Mexico; Denver, Colorado;
Bowling Green, Kentucky; Ocoee, Florida; Strongsville, Ohio; Spartanburg, South
Carolina; Niles, Ohio; and Vero Beach, Florida. We closed three stores during
the fourth quarter.
These stores, along with our remodeled and expanded stores added a net
2,728,000 square feet to our retail space. In management's opinion, these
stores will follow our normal patterns of contribution to our profits in
their second and third years. At the end of 1996, we operated 250 stores in
24 states.
For 1997, we plan to build 11 new stores. In acquisitions, we have entered into
an agreement with Proffitt's Inc. to purchase seven stores located in the
Richmond and Tidewater areas of Virginia. We have also agreed to purchase ten
Mervyn's stores in Florida, six of which will be remodeled and open in 1997.
Additionally, we will buy three Macy's stores in Houston, Texas. We are excited
about the prospects for these stores which will add well over three million
square feet to our store base in 1997.
Our balance sheet remains strong. Our long-term debt to total capitalization
ratio dropped to 30.4% at the end of 1996 compared to 32.2% at the end of 1995,
placing us in the ranks of the most strongly capitalized retailers. In March
1997, we announced the implementation of a Class A common stock repurchase
program of up to $300 million. This program underscores our confidence in the
financial strength of your Company. We are poised for growth and are constantly
looking for opportunities to leverage our strengths.
Above all, 1996 gave us a chance to reveal our true depth. Backed by our 43,470
associates, we emerged as a strong, confident and efficient player in a field of
intense competition. We remain committed to continuing that success.
William Dillard
Chairman of the Board and Chief Executive Officer
March 31, 1997
Sales by Merchandise Category
(percentage of total sales)
Women's & Junior's Clothing 29.9
Shoes, Accessories & Lingerie 19.9
Men's Clothing & Accessories 19.5
Cosmetics 12.9
Home 10.8
Children's Clothing 6.5
Leased Departments .5
Declaration of Our Direction and Performance
Strong. Confident. Efficient. These words best define the business of Dillard
Department Stores in 1996. In an extremely competitive retail environment, the
Company sought to leverage the benefits brought about by its internal
reorganization. Dillard's goal was to more efficiently manage its inventory
levels and to deliver improved value to the customers through an enhanced
private-label merchandising program.
Strong. The Company continued to strengthen its financial position in 1996.
Total stockholders' equity grew by $239 million while long-term debt increased
only slightly. As a result of these factors, the Company's long-term debt to
capitalization ratio fell from 32.2% at the end of 1995 to 30.4% at the end of
1996. The Company has one of the strongest balance sheets within the retail
industry.
Confident. The Board of Directors believed the Company's stock was underpriced
in view of the Company's performance and potential. After careful consideration,
the Board authorized management to implement a Class A common share repurchase
program of up to $300 million. With this aggressive move, Dillard's sought to
bolster stockholders' interest. Within hours after the decision was announced,
the stock price rose an average of 6% - a strong indication of positive investor
confidence in Dillard's.
Efficient. In March 1996, Dillard's announced the realignment of the operating
divisions, reducing seven regional offices to five, enabling regional management
to concentrate on specific geographic and climatic areas. This reorganization
better allows the Company to capitalize on supply chain efficiencies, such as
buying, warehousing and distribution.
The net result is more effective placement of inventories within the store
system, which has allowed Dillard's to remain one of the retail industry's
lowest cost operators. This consolidation has already reduced buying and
merchandising costs and will continue to do so in the long term.
To complement this realignment, Dillard's developed a corporate planning group
to forecast ideal reorder points and inventory levels in each store and within
the divisions. Working in concert with store and merchandising management, this
group will help optimize the inventory levels in each store, maximizing
inventory turnover.
Dillard's was a company of many qualities in 1996. Strong in financial position.
Confident in performance. Efficient in infrastructure. And most importantly,
intelligent - to make all the parts work together to build an impressive bottom
line.
Progress Through Development and Acquisition
New Stores. Expansions. Acquisitions. Each is a key part of Dillard's carefully
planned growth strategy. Given limited growth opportunities, due to the
increasingly small number of acceptable retail locations, Dillard's made great
strides in all these areas in the past year. As of February, 1997, the Company
operated 250 stores in 24 states.
New Stores. In 1996, Dillard's entered two new major markets - Denver, Colorado
and Atlanta, Georgia. The Denver store was the most successful entry into a new
market in the history of the Company. With these and other new stores in
existing markets, the Company opened 16 stores, ranging in size from 100,000 to
250,000 square feet. All of these newly constructed stores are wholly owned by
the Company. In 1997, Dillard's will be moving into several new markets - two of
which are Cheyenne, Wyoming and Stockton, California. These new stores will give
the Company a firm regional foothold, allowing a test of the retail waters and
opening the doors to future opportunities in those areas.
Expansions. Dillard's expanded six stores in 1996, adding over 400,000 square
feet of store space. In addition, the Company remodeled a significant number of
stores throughout the year. Two basic conditions make expansions/remodels
necessary - first, to expand square footage due to growing customer demands and,
secondly, to update store facilities and fixtures. By updating numerous
locations each year, the Company keeps store resources modern, efficient and
competitive. In keeping with this plan, a number of stores in various markets
are slated for remodeling and expansion in 1997.
Acquisitions. Dillard's plans to acquire 20 stores in 1997, ranging in size from
65,000 to 210,000 square feet. The Company has agreed to purchase seven
Proffitt's stores in Virginia, a new market for the Company. In Florida,
Dillard's has entered into agreements to buy ten stores of the Mervyn's chain
and in Houston, Texas, three Macy's stores will be acquired. These stores have
the potential to increase the Company's selling space by an extra 1.7 million
square feet - representing a 4% increase. More importantly, once purchased, they
will position Dillard's as a leading department store in each market. In some
shopping malls where the Company needs more space and a Dillard's already
exists, an acquired store will become a second Dillard's store. This
double-anchor concept, pioneered by Dillard's, has proven successful and, in
fact, has been emulated by other retail chains.
New Stores Opened - 1996
January, Naples, FL - Coastland Mall - 180,000 sq. ft. (replacing 80,000 sq.ft.)
February, Lake Wales, FL - Eagle Ridge Center - 126,000 sq. ft.
February, Henderson, NV - Galleria at Sunset - 200,000 sq. ft.
March, El Paso, TX - Bassett Shopping Center - 140,000 sq. ft.
March, Sarasota, FL - Sarasota Square - 100,000 sq. ft.
March, Sugar Land, TX - First Colony - 200,000 sq. ft.
March, Alpharetta, GA - North Point Mall - 250,000 sq. ft.
May, Columbia, SC - Columbia Mall - 180,000 sq. ft.
July, Albuquerque, NM - Cottonwood Mall - 180,000 sq. ft.
August, Denver, CO - Park Meadows Mall - 240,000 sq. ft.
September, Bowling Green, KY - Greenwood Mall - 122,000 sq. ft.
October, Ocoee, FL - West Oaks - 200,000 sq. ft.
October, Strongsville, OH - SouthPark Center - 200,000 sq. ft.
October, Spartanburg, SC - Westgate Mall - 150,000 sq. ft.
October, Niles, OH - Eastwood Mall - 120,000 sq. ft.
November, Vero Beach, FL - Indian River Mall - 127,000 sq. ft.
New Stores To Be Opened - 1997
February, Macon, GA - Macon Mall - 175,000 sq. ft.
February, Memphis, TN - Wolfchase Galleria - 200,000 sq. ft.
March, Colorado Springs, CO - Chapel Hills Mall - 180,000 sq. ft.
March, Cheyenne, WY - Frontier Mall - 85,000 sq. ft.
March, Longmont, CO - Twin Peaks Mall - 94,000 sq. ft.
August, Waterloo, IA - Crossroads Mall - 150,000 sq. ft.
September, Sandy, UT - South Towne Square - 200,000 sq. ft.
October, Meridian, MS - Bonita Lakes Mall - 126,000 sq. ft.
October, Stockton, CA - Weberstown - 200,000 sq. ft.
October, Richmond, IN - Richmond Square - 86,000 sq. ft.
October, Baton Rouge, LA - Mall of Louisiana - 200,000 sq. ft.
Stores Expanded and Remodeled - 1996
March, Houma, LA - Southland Mall - 50,000 sq. ft.
April, Las Vegas, NV - The Meadows - 56,000 sq. ft.
August, Tulsa, OK - Promenade - 74,000 sq. ft.
August, Fayetteville, AR - Northwest - 100,000 sq. ft.
September, Texarkana, TX - Central - 25,000 sq. ft.
November, Daytona Beach, FL - Volusia Mall - 100,000 sq. ft.
Board of Directors
William Dillard
Chairman of the Board
Chief Executive Officer
Dillard Department Stores
Calvin N. Clyde, Jr.
Chairman of the Board
T.B. Butler Publishing Co., Inc.
Tyler, Texas
Robert C. Connor
Investments
Drue Corbusier
Vice President
Dillard Department Stores
Will D. Davis
Partner
Heath, Davis & McCalla Attorneys
Austin, Texas
Alex Dillard
Executive Vice President
Dillard Department Stores
Mike Dillard
Executive Vice President
Dillard Department Stores
William Dillard, II
President
Chief Operating Officer
Dillard Department Stores
James I. Freeman
Senior Vice President
Chief Financial Officer
Dillard Department Stores
John Paul Hammerschmidt
Retired Member of Congress
Harrison, Arkansas
William B. Harrison, Jr.
Vice Chairman
Chase Manhattan Corporation
New York, New York
J.M. Hessels
Chairman, Executive Board
Vendex International N.V.
Amsterdam, The Netherlands
John H. Johnson
President and Publisher
Johnson Publishing Company, Inc.
Chicago, Illinois
E. Ray Kemp
Retired Vice Chairman and
Chief Administrative Officer
Dillard Department Stores
William H. Sutton
Managing Partner
Friday, Eldredge & Clark Attorneys
Little Rock, Arkansas
Senior Management
William Dillard Chairman of the Board and Chief Executive Officer
William Dillard, II President, Chief Operating Officer
Alex Dillard Executive Vice President
Mike Dillard Executive Vice President
James I. Freeman Senior Vice President, Chief Financial Officer
James E. Darr, Jr. Senior Vice President, Secretary and General Counsel
Vice Presidents
W.R. Appleby, II
Gregg Athy
H. Gene Baker
Jan E. Bolton
Michael Bowen
Joseph P. Brennan
G. Kent Burnett
Larry Cailteux
Wynelle Chapman
Neil Christensen
Drue Corbusier
Daniel Demicell
David M. Doub
Richard Eagan
Robert L. Edwards
John A. Franzke
T.R. Gastman
Bernard Goldstein
Roy J. Grimes
Randal L. Hankins
G. William Haviland
John Hawkins
Mark Killingsworth
David Kolmer
Gaston Lemoine
Denise Mahaffy
Robert G. McGushin
Michael S. McNiff
Jeff Menn
Anthony Menzie
Steven K. Nelson
Steven T. Nicoll
Harry D. Passow
M.E. Ritchie, Jr.
Richard Roberds
James Schatz
Linda Sholtis-Tucker
Burt Squires
Joseph W. Story
Ralph Stuart
David Terry
Richard B. Willey
Linda Zwern
Operating Divisions
Ft. Worth
Drue Corbusier
Chairman
H. Gene Baker
President
Gregg Athy
Vice President, Merchandising
Wynelle Chapman
Vice President, Merchandising
Gaston Lemoine
Vice President, Stores
Anthony Menzie
Vice President, Stores
Richard Roberds
Vice President, Stores
James Schatz
Vice President, Stores
William B. Warner
Vice President, Sales Promotion
Little Rock
Mike Dillard
Chairman
John A. Franzke
President
David Terry
Vice President, Merchandising
Burt Squires
Vice President, Stores
Richard B. Willey
Vice President, Stores
Ken Eaton
Vice President, Sales Promotion
Phoenix
G. Kent Burnett
Chairman
Bernard Goldstein
President
Joseph P. Brennan
Vice President, Merchandising
Robert G. McGushin
Vice President, Stores
Jeff Menn
Vice President, Stores
Robert E. Baker
Vice President, Sales Promotion
St. Louis
Roy J. Grimes
Chairman
Harry D. Passow
President
Daniel Demicell
Vice President, Merchandising
Mark Killingsworth
Vice President, Merchandising
Larry Cailteux
Vice President, Stores
Neil Christensen
Vice President, Stores
Richard Eagan
Vice President, Stores
David Kolmer
Vice President, Stores
Howard Hall
Vice President, Sales Promotion
Tampa
T.R. Gastman
Chairman
David M. Doub
President
Linda Zwern
Vice President, Merchandising
W.R. Appleby, II
Vice President, Stores
Robert L. Edwards
Vice President, Stores
Steven T. Nicoll
Vice President, Stores
Linda Sholtis-Tucker
Vice President, Stores
Louise Platt
Vice President, Sales Promotion
Dillard's Locations
Year-End, 1996
1996 1995 1994
Texas 64 63 62
Florida 34 30 27
Missouri 16 16 16
Louisiana 15 16 16
Ohio 15 13 13
North Carolina 14 14 13
Oklahoma 14 14 14
Arizona 13 13 13
Tennessee 12 12 12
Kansas 9 9 9
Arkansas 7 7 7
South Carolina 7 6 6
New Mexico 5 4 4
Kentucky 4 3 1
Nebraska 4 4 4
Nevada 4 3 3
Mississippi 3 3 3
Colorado 2 1
Illinois 2 2 2
Utah 2 2 2
Alabama 1 1 1
Georgia 1
Indiana 1 1
Iowa 1 1 1
Total 250 238 229
Table of Contents
14 Table of Selected Financial Data
16 Management's Discussion and Analysis
20 Independent Auditors' Report
21 Consolidated Balance Sheets
22 Consolidated Statements of Income
23 Consolidated Statements of Stockholders' Equity
24 Consolidated Statements of Cash Flows
25 Notes to Consolidated Financial Statements
32 Annual Meeting and General Information
32 Stock Prices and Dividends by Quarter
Financial Review
Table of Selected Financial Data
Dillard Department Stores, Inc. And Subsidiaries
(In thousands of dollars, except per share data)
1996 1995* 1994 1993 1992 1991 1990
Net Sales $6,227,585 $5,918,038 $5,545,803 $5,130,648 $4,713,987 $4,036,392 $3,605,518
Percent Increase 5% 7% 8% 9% 17% 12% 18%
Cost of Sales 4,124,765 3,893,786 3,614,628 3,306,757 3,043,348 2,565,904 2,287,891
Percent of Sales 66.2% 65.8% 65.2% 64.4% 64.5% 63.6% 63.5%
Interest and Debt Expense 120,599 120,054 124,282 130,915 121,940 109,386 97,032
Income Before Taxes 378,761 269,653 (a) 406,110 399,534 375,330 322,157 280,778
Income Taxes 140,140 102,470 154,320 158,400 138,900 116,000 98,000
Net Income 238,621 167,183 (a) 251,790 241,134 236,430 206,157 182,778
Per Common Share **
Income 2.09 1.48 2.23 2.14 2.11 1.84 1.67
Dividends 0.14 0.12 0.10 0.08 0.08 0.07 0.07
Book Value 23.91 21.91 20.55 18.42 16.28 14.19 12.31
Average Number of Shares
Outstanding ** 113,988,633 113,143,842 113,013,998 112,808,262 112,292,575 111,832,758 109,351,914
Accounts Receivable - Total 1,154,673 1,123,103 1,117,411 1,111,744 1,106,710 1,004,496 932,544
Merchandise Inventories 1,556,958 1,486,045 1,362,756 1,299,944 1,178,562 1,052,683 889,333
Property and Equipment 2,186,867 2,024,342 1,960,922 1,892,054 1,662,181 1,318,027 1,066,562
Total Assets 5,059,726 4,778,535 4,577,757 4,430,274 4,107,114 3,498,506 3,007,979
Long-term Debt 1,173,018 1,157,864 1,178,503 1,238,293 1,381,676 1,008,967 839,490
Capitalized Lease Obligations 13,690 20,161 22,279 31,621 32,381 29,489 31,284
Deferred Income Taxes - Total 261,094 248,468 302,801 284,981 178,311 143,463 115,854
Stockholders' Equity 2,717,178 2,478,327 2,323,567 2,081,647 1,832,018 1,583,475 1,364,885
Number of Employees - Average 43,470 40,312 37,832 35,536 33,883 32,132 31,786
Gross Square Footage (in thousands) 40,000 37,300 35,300 34,900 33,200 29,100 26,600
Number of Stores
Opened 15 9 7 10 11 10 4
Acquired 0 0 0 0 12 7 23
Closed 3 0 5 1 3 5 3
Total - End of Year 250 238 229 227 218 198 186
* 53 Weeks ** Restated 3 for 1 stock split (a) Includes Impairment charges of $126.6 million before taxes
($78.5 million after tax).
Table of Selected Financial Data
Dillard Department Stores, Inc. and Subsidiaries
(in thousands of dollars, except per share data)
1989* 1988 1987
Net Sales $ 3,049,062 $ 2,558,395 $ 2,206,347
Percent of Sales 19% 16% 19%
Cost of Sales 1,926,971 1,636,861 1,398,808
Percent of Sales 63.2% 64.0% 63.4%
Interest and Debt Expense 91,836 80,979 64,179
Income Before Taxes 227,892 172,529 155,223
Income Taxes 79,800 58,700 64,000
Net income 148,092 113,829 91,223
Per Common Share **
Income 1.45 1.18 0.94
Dividends 0.06 0.05 0.05
Book Value 10.23 7.80 6.67
Average Number of Shares
Outstanding ** 101,890,272 96,655,737 96,571,272
Accounts Receivable - Total 759,803 654,333 605,299
Merchandise Inventories 716,054 527,931 500,831
Property and Equipment 897,847 787,210 694,991
Total Assets 2,496,277 2,067,517 1,888,033
Long-term Debt 739,597 620,956 594,773
Capitalized Lease Obligations 32,900 25,157 26,443
Deferred Income Taxes - Total 108,426 128,565 125,828
Stockholders' Equity 1,094,721 752,178 643,386
Number of Employees - Average 26,304 23,114 21,168
Gross Square Footage (in thousands) 23,500 20,800 18,500
Number of Stores
Opened 3 7 6
Acquired 19 4 17
Closed 6 0 3
Total - End of Year 162 146 135
* 53 weeks ** Restated for 3 for 1 stock split
Management's Discussion And Analysis of Financial Condition
And Results of Operations
Dillard Department Stores, Inc. and Subsidiaries
Sales
The sales increases for the past three years on a comparable 52-week basis have
been:
1996 1995 1994
Sales Increase 7% 5% 8%
Comparable store sales increases by quarter for the past three years on a
comparable 13-week basis have been:
1996 1995 1994
First Quarter 6% 1% 7%
Second Quarter 2 4 4
Third Quarter 1 2 5
Fourth Quarter 0 3 4
Year 2 2 5
Comparable store sales include sales for those stores which were in operation
for a full period in both the current quarter and the corresponding quarter
for the prior year.
The slower comparable store sales gains experienced in 1996 and 1995 reflect
the challenges of a difficult environment for apparel retailers. Management
believes that the majority of the increase in sales on a comparable
52-week basis and in comparable store sales on a comparable 13-week basis
was attributable to an increase in the volume of goods sold rather than an
increase in the price of goods.
The sales mix for the past three years by category and percent of total sales
has been:
1996 1995 1994
Cosmetics 12.9% 12.7% 12.5%
Women's & Junior's Clothing 29.9 30.0 30.4
Children's Clothing 6.5 6.5 6.7
Men's Clothing & Accessories 19.5 18.9 18.6
Shoes, Accessories & Lingerie 19.9 19.5 19.1
Home 10.8 11.7 11.9
Leased Departments .5 .7 .8
Total 100.0% 100.0% 100.0%
At year end there were 250 stores in operation. Average gross square footage
and sales per average square foot for the past three years on a comparable
52-week basis have been:
1996 1995 1994
Average Gross Square Footage (000) 39,000 36,400 35,300
Sales per Average Square Foot $ 160 $ 160 $ 157
Cost Of Sales
Cost of sales as a percentage of sales for the past three years has been 66.2%
for 1996, 65.8% for 1995 and 65.2% for 1994. The increases in the cost of sales
for 1996 over 1995 and for 1995 over 1994 were caused principally by a higher
level of markdowns necessitated by competitive pressures.
Expenses
Expenses as a percent of sales for the past three years are as follows:
1996 1995 1994
Advertising, Selling, Administrative
& General Expenses 24.7% 24.3% 24.0%
Depreciation & Amortization 3.1 3.3 3.4
Rentals .9 1.0 1.2
Interest & Debt Expense 2.0 2.0 2.2
Advertising, selling, administrative and general expenses increased as a
percentage of sales in 1996 and 1995 primarily because of a higher payroll
expense in the selling area and higher bad debt expense in 1996. Depreciation
and amortization decreased slightly as a percentage of sales during 1996 and
1995. This was caused by the write down of the carrying values of property and
equipment at certain stores in the fourth quarter of 1995 (see Impairment
Charges below). Rentals decreased slightly as a percentage of sales during 1996
and 1995, primarily due to a higher proportion of the Company's properties
being owned rather than leased. Interest and debt expense remained constant
as a percentage of sales in 1996 and 1995 reflecting a lower level of debt
relative to sales than the 1994 debt level.
Impairment Charges
Effective October 29, 1995, the Company adopted Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." The Company evaluated its
investment in long-lived assets to be held and used in operations on an
individual store basis and determined that, based upon the history of operating
results and updated operating projections, the property and equipment at 20
stores were impaired. The Company estimated the fair value of the assets at
these stores based on operating projections and future discounted cash flows and
recorded an after-tax charge of approximately $78.5 million ($.69 per share),
which represents the amount required to write down the carrying value of
property and equipment to their estimated fair value of approximately $112
million at February 3, 1996.
Liquidity & Capital Resources
The relevant ratios regarding liquidity and capital resources for the past
three years are:
1996 1995 1994
Working Capital (000) $1,865,890 $1,788,545 $1,765,844
Current Ratio 3.1 3.1 3.3
Long-term debt to capitalization 30.4% 32.2% 34.1%
Stockholders' equity to total assets 53.7% 51.9% 50.8%
The ratio of long-term debt to capitalization is calculated by dividing the
total amount of long-term debt and capitalized lease obligation by the sum of
the total amount of long-term debt and capitalized lease obligation plus
total equity.
The Company continues to finance the growth of the business primarily through
operating earnings. The Company sold $100 million 7.375% and $100 million 7.75%
unsecured notes in 1996. The proceeds were used to reduce commercial paper
borrowings. The Company sold $100 million 6.875% unsecured notes in 1995. The
proceeds were used to reduce the balance of commercial paper outstanding and
for general corporate purposes. The Company did not issue long-term debt during
fiscal 1994. At the end of 1996, the Company had an outstanding shelf
registration for unsecured notes in the amount of $200 million.
For the past several years, Dillard Investment Co., Inc. ("DIC"),
a wholly-owned finance subsidiary has sold commercial paper in the public
market. At February 1, 1997, the amount of commercial paper outstanding was
$129 million.
The Company has line of credit agreements with various banks aggregating $110
million. Additionally, the Company and DIC have a revolving line of credit in
the amount of $500 million. No funds were borrowed under the revolving line
of credit or the line of credit agreements during fiscal 1996, 1995 or 1994.
During 1996, the Company generated $289.3 million in cash from operating
activities, as compared to $299.1 million in fiscal 1995 and $395.3 million in
fiscal 1994. The primary reason for the decrease in 1995 over 1994 was the
increase in merchandise inventories. Merchandise inventories increased by
approximately 5% in 1996 and 9% in 1995. There was no increase in the Company's
merchandise inventories on a comparable store basis in 1996 or 1994. The
increase in the Company's merchandise inventories on a comparable store basis
was 4% in 1995.
Capital expenditures for 1996 were $350.1 million compared to $347.2 million
for 1995 and $253.0 million for 1994.
During 1996, the Company opened 16 new stores (one of which was a replacement
store), expanded six stores and closed three stores. During 1995, the Company
opened 11 new stores (two of which were replacement stores) and expanded six
stores. During 1994, the Company opened nine new stores (two of which were
replacement stores), expanded two stores and closed five stores.
For 1997, the Company plans to open 11 stores and plans to expand and remodel an
additional ten stores. In addition, the Company has entered into an agreement
with Proffitt's Inc. to purchase seven department stores located in Richmond
and the Tidewater area of Virginia. The Company has also entered into an
agreement with Mervyn's for the purchase of ten department stores located in
South Florida. The Company has agreed to purchase three Macy's stores in
Houston, Texas from Federated Department Stores, Inc. The combined capital
expenditures for 1997 including all of the stores mentioned above is expected
to be approximately $475 million.
In February 1997, the Company announced that the Board of Directors had
authorized the implementation of a Class A common share repurchase program of
up to $300 million. The Company will make purchases pursuant to this program
through open-market transactions, depending on market conditions.
The Company will finance its capital expenditures, common stock repurchase
activity as well as its working capital requirements including required debt
repayments from cash flows generated from operations and by issuing new debt.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"),
which is effective for the Company on January 31, 1998. SFAS No. 128 simplifies
the standards for computing earnings per share previously found in Accounting
Principles Board Opinion No. 15 and establishes new standards for computing and
presenting earnings per share. Application of SFAS No. 128 is not expected to
have a significant effect on the Company's earnings per share.
Independent Auditors' Report
Dillard Department Stores, Inc. and Subsidiaries
To the Stockholders and Board of Directors of
Dillard Department Stores, Inc.
Little Rock, Arkansas
We have audited the accompanying consolidated balance sheets of Dillard
Department Stores, Inc. and subsidiaries as of February 1, 1997 and
February 3, 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended February 1, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Dillard Department Stores, Inc.
and subsidiaries as of February 1, 1997 and February 3, 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended February 1, 1997 in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for the impairment of long-lived assets and
for long-lived assets to be disposed of effective October 29, 1995 to conform
with Statement of Financial Accounting Standards No. 121.
Deloitte & Touche LLP
New York, New York
February 25, 1997
Consolidated Balance Sheets
Dillard Department Stores, Inc. and Subsidiaries
(Amounts in thousands, except share data)
Assets February 1, 1997 February 3, 1996
CURRENT ASSETS:
Cash and cash equivalents $ 64,094 $ 58,442
Trade accounts receivable (net of allowance for
doubtful accounts of $24,169 and $19,528) 1,130,504 1,103,575
Merchandise inventories 1,556,958 1,486,045
Other current assets 9,080 10,163
Total current assets 2,760,636 2,658,225
INVESTMENTS AND OTHER ASSETS 107,157 84,772
PROPERTY AND EQUIPMENT
Land and land improvements 37,038 37,038
Buildings and leasehold improvements 1,576,058 1,394,551
Furniture, fixtures and equipment 1,839,970 1,728,789
Buildings under construction 55,024 43,552
Less accumulated depreciation and amortization (1,321,223) (1,179,588)
2,186,867 2,024,342
BUILDINGS UNDER CAPITAL LEASES -
Less amortization of $20,082 and $23,977,
respectively 5,066 11,196
TOTAL ASSETS $ 5,059,726 $ 4,778,535
Liabilities And Stockholders' Equity February 1, 1997 February 3,1996)
CURRENT LIABILITIES:
Trade accounts payable and accrued expenses $ 536,695 $ 559,011
Commercial paper 128,738 125,310
Federal and state income taxes 46,220 51,832
Current portion of long-term debt 181,564 131,378
Current portion of capital lease obligations 1,529 2,149
Total current liabilities 894,746 869,680
LONG-TERM DEBT 1,173,018 1,157,864
CAPITAL LEASE OBLIGATIONS 13,690 20,161
DEFERRED INCOME TAXES 261,094 252,503
OPERATING LEASES AND COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock - shares issued, 4,400 440 440
Common stock, Class A -
shares issued, 109,594,496 and 109,070,691 1,096 1,091
Common stock, Class B (convertible) -
shares issued, 4,016,929 40 40
Additional paid-in capital 641,388 625,249
Retained earnings 2,074,214 1,851,507
Total stockholders' equity 2,717,178 2,478,327
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,059,726 $ 4,778,535
See notes to consolidated financial statements.
Consolidated Statements Of Income
Dillard Department Stores, Inc. and Subsidiaries
(Amounts in thousands, except per share data)
Year Ended February 1, 1997 February 3, 1996 January 28, 1995
NET SALES $6,227,585 $5,918,038 $5,545,803
SERVICE CHARGES, INTEREST
AND OTHER INCOME 184,475 179,100 182,785
6,412,060 6,097,138 5,728,588
COSTS AND EXPENSES:
Cost of sales 4,124,765 3,893,786 3,614,628
Advertising, selling,
administrative and
general expenses 1,538,450 1,436,446 1,328,353
Depreciation and amortization 193,719 191,805 190,299
Rentals 55,766 58,835 64,916
Interest and debt expense 120,599 120,054 124,282
Impairment charges - 126,559 -
Total costs and expenses 6,033,299 5,827,485 5,322,478
INCOME BEFORE INCOME TAXES 378,761 269,653 406,110
INCOME TAXES 140,140 102,470 154,320
NET INCOME $ 238,621 $ 167,183 $ 251,790
INCOME PER COMMON SHARE $ 2.09 $ 1.48 $ 2.23
See notes to consolidated financial statements.
Consolidated Statements Of Stockholders' Equity
Dillard Department Stores, Inc. and Subsidiaries
(Amounts in thousands, except per share data)
Common Common Additional
Preferred Stock Stock Paid-in Retained
Stock Class A Class B Capital Earnings Total
BALANCE, JANUARY 29, 1994 $440 $1,090 $40 $622,634 $1,457,443 $2,081,647
Issuance of 53,937 shares under
stock option, employee savings
and stock bonus plans - - - 1,452 - 1,452
Net income - - - - 251,790 251,790
Cash dividends:
Preferred stock, $5 per share - - - - (22) (22)
Common stock, $.10 per share - - - - (11,300) (11,300)
BALANCE, JANUARY 28, 1995 $440 $1,090 $40 $624,086 $1,697,911 $2,323,567
Issuance of 41,964 shares under
stock option, employee savings
and stock bonus plans - 1 - 1,163 - 1,164
Net income - - - - 167,183 167,183
Cash dividends:
Preferred stock, $5 per share - - - - (22) (22)
Common stock, $.12 per share - - - - (13,565) (13,565)
BALANCE, FEBRUARY 3, 1996 $440 $1,091 $40 $625,249 $1,851,507 $2,478,327
Issuance of 523,805 shares under
stock option, employee savings
and stock bonus plans - - - 16,139 - 16,144
Net income - - - - 238,621 238,621
Cash dividends:
Preferred stock, $5 per share - - - - (22) (22)
Common stock, $.14 per share - - - - (15,892) (15,892)
BALANCE, FEBRUARY 1, 1997 $440 $1,096 $40 $641,388 $2,074,214 $2,717,178
See notes to consolidated financial statements.
Consolidated Statements Of Cash Flows
Dillard Department Stores, Inc. and Subsidiaries
(Amounts in thousands)
Year Ended February 1, 1997 February 3, 1996 January 28, 1995
OPERATING ACTIVITIES:
Net income $ 238,621 $ 167,183 $ 251,790
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 195,186 193,313 191,870
Deferred income taxes 12,625 (54,332) 17,820
Impairment charges - 126,559 -
Changes in operating assets and liabilities:
Increase in trade accounts receivable (26,929) (1,471) (5,574)
Increase in merchandise inventories (70,913) (123,289) (62,812)
Decrease (increase) in other current assets 1,083 (1,316) 129
Increase in investments and other assets (23,852) (23,176) (18,271)
(Decrease) increase in trade accounts payable
and accrued expenses and income taxes (36,516) 15,653 20,342
Net cash provided by operating activities 289,305 299,124 395,294
INVESTING ACTIVITIES:
Purchase of property and equipment (350,114) (347,202) (252,974)
Net cash used in investing activities (350,114) (347,202) (252,974)
FINANCING ACTIVITIES:
Net increase (decrease) in commercial paper 3,428 35,404 (55,370)
Proceeds from long-term borrowings 200,000 100,000 -
Principal payments on long-term debt and
capital lease obligations (141,751) (64,155) (78,359)
Dividends paid (11,360) (16,988) (10,192)
Common stock issued 16,144 1,164 1,452
Net cash provided by (used in)
financing activities 66,461 55,425 (142,469)
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 5,652 7,347 (149)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 58,442 51,095 51,244
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 64,094 $ 58,442 $ 51,095
See notes to consolidated financial statements.
Notes To Consolidated Financial Statements
Dillard Department Stores, Inc. and Subsidiaries
Years Ended February 1, 1997, February 3, 1996, and January 28, 1995
1. Description Of Business And Summary Of Significant Accounting Policies
Description of Business - Dillard Department Stores, Inc. (the
"Company") operates retail department stores located primarily in the
Southeastern, Southwestern and Midwestern areas of the United States. The
Company's fiscal year ends on the Saturday nearest January 31. Fiscal year
1996 ended on February 1, 1997 and included 52 weeks. Fiscal year 1995 ended
on February 3, 1996 and included 53 weeks. Fiscal year 1994 ended on
January 28, 1995 and included 52 weeks.
Consolidation - The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries, including
its real estate subsidiary, Construction Developers, Inc. (which leases property
principally to the Company), its wholly-owned finance subsidiary, Dillard
Investment Co., Inc. ("DIC"), and Dillard National Bank ("DNB"), a wholly-owned
subsidiary of DIC (which grants credit card loans to the Company's customers).
Intercompany accounts and transactions are eliminated in consolidation.
Investments in and advances to joint ventures in which the Company has a 50%
ownership interest are accounted for by the equity method.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Costs, Expenses and Related Balance Sheet Accounts - The retail last-in,
first-out ("LIFO") inventory method is used to value merchandise inventories. At
February 1, 1997 and February 3, 1996, the LIFO cost of merchandise was
approximately equal to the first-in, first-out ("FIFO") cost of merchandise.
Property and equipment owned by the Company is stated at cost, which
includes related interest costs incurred during the construction period, less
accumulated depreciation and amortization. Capitalized interest was $4.4
million, $3.6 million and $2.5 million in fiscal 1996, 1995 and 1994,
respectively. For tax reporting purposes, accelerated depreciation or cost
recovery methods are used and the related deferred income taxes are included
in noncurrent deferred income taxes in the consolidated balance sheet. For
financial reporting purposes, depreciation is computed by the straight-line
method over estimated useful lives:
Buildings and leasehold improvements 20 - 40 years
Furniture, fixtures and equipment 3 - 10 years
Properties leased by the Company under lease agreements which are
determined to be capital leases are stated at an amount equal to the present
value of the minimum lease payments during the lease term, less accumulated
amortization. The properties under capital leases and leasehold improvements
under operating leases are being amortized on the straight-line method over the
shorter of their useful lives or their related lease terms. The provision for
amortization of leased properties is included in depreciation and amortization
expense.
Preopening costs of new stores are expensed in the quarter that the
store opens.
Income Taxes - Deferred income taxes reflect the future tax consequences
of differences between the tax bases of assets and liabilities and their
financial reporting amounts at year-end.
Accounts Receivable - Customer accounts receivable are classified as
current assets and include some which are due after one year, consistent with
industry practice. Concentrations of credit risk with respect to customer
receivables are limited due to the large number of customers comprising the
Company's credit card base, and their dispersion across the country.
Earnings Per Common Share - Earnings per common share have been computed
based on the weighted average of Class A and Class B common shares outstanding,
after deducting preferred dividend requirements and giving effect to outstanding
stock options. Shares used in computing earnings per common share were
113,988,633, 113,143,842 and 113,013,998 for fiscal 1996, 1995 and 1994,
respectively.
Cash Equivalents - The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
Employees' Retirement Plan - The Company has a retirement plan with a
401(k) salary deferral feature for eligible employees. Under the terms of the
plan, employees may contribute up to 5% of gross earnings which will be matched
100% by the Company. The contributions are used to purchase Class A Common Stock
of the Company for the account of the employee. The terms of the plan provide a
five-year cliff vesting schedule for the Company contribution to the plan.
2. Impairment Of Long-Lived Assets
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" which provides guidance on when to assess
and how to measure impairment of long-lived assets, certain intangibles and
goodwill related to those assets to be held and used, and for long-lived assets
and certain identifiable intangibles to be disposed of as of October 29, 1995.
The Company evaluated its investment in long-lived assets to be held and
used in operations on an individual store basis and determined that, based upon
the history of operating results and updated operating projections, the property
and equipment at certain stores was impaired. The Company estimated the fair
value of the assets at these stores based on operating projections and future
discounted cash flows. As a result, the Company recorded an after-tax charge of
approximately $78.5 million in 1995 ($.69 per share) representing the amount
required to write down the carrying value of the property and equipment to their
estimated fair value of approximately $112 million at February 3, 1996. During
1996, the Company performed a similar review of its long-lived assets and
determined that no additional impairment loss needed to be recognized.
3. Commercial Paper And Revolving Credit Agreement
DIC commercial paper generally matures within 45 days from the date of
issue at effective interest rates ranging from 5.29% to 5.43% at February 1,
1997. At February 1, 1997 and February 3, 1996, the weighted average interest
rate for outstanding commercial paper was 5.37% and 5.46%, respectively. The
average amount of commercial paper outstanding during fiscal 1996 was $134
million, at a weighted average interest rate of 5.43%.
At February 1, 1997, the Company and DIC had revolving line of credit
agreements with various banks aggregating $500 million. The line of credit
agreements require that consolidated stockholders' equity be maintained
at $1 billion or more. These agreements expire on July 13, 1999. A commitment
fee of .10% of the committed amount is paid to the banks to secure these line
of credit agreements, which cannot be withdrawn except in the case of defaults
by the Company or DIC. Interest may be fixed for periods from one to six months
at the election of the Company or DIC. Interest is payable at the lead bank's
certificate of deposit, alternative base rate or Eurodollar rate. In addition,
at February 1, 1997, the Company had line of credit agreements with various
banks aggregating $110 million. The agreements have no fixed date of expiration,
and interest on amounts drawn fluctuates daily based on market rates. There
were no funds borrowed under the revolving line of credit agreements or line
of credit agreements during fiscal 1994 through fiscal 1996.
4. Long-Term Debt
Long-term debt consists of the following (in thousands of dollars):
February 1, 1997 February 3, 1996
Unsecured notes at rates ranging from
6.875% to 9.625%, due 1997 through 2026 $1,100,000 $ 950,000
Unsecured 5.7% note to bank, due June 3, 1996 - 75,000
Unsecured 9.25% notes of DIC due 1997 through 2001 175,000 175,000
Mortgage notes, payable monthly or quarterly (some
with balloon payments) over periods up to
31 years from inception and bearing interest
at rates ranging from 6.75% to 13.25% 79,582 89,242
1,354,582 1,289,242
Current portion (181,564) (131,378)
$1,173,018 $1,157,864
Building, land, land improvements and equipment with a carrying value of
$101.1 million at February 1, 1997 are pledged as collateral on the mortgage
notes.
Maturities of long-term debt over the next five years are $181.5
million, $107.3 million, $108.0 million, $108.8 million and $59.6 million.
Interest and debt expense consists of the following (in thousands of dollars):
Fiscal 1996 Fiscal 1995 Fiscal 1994
Long-term debt:
Interest $110,265 $107,572 $110,945
Amortization of debt expense 1,422 1,400 1,404
111,687 108,972 112,349
Interest on capital lease obligations 1,813 2,241 2,324
Commercial paper interest 7,299 6,014 5,692
Other (200) 2,827 3,917
$120,599 $120,054 $124,282
Interest paid during fiscal 1996, 1995 and 1994 was approximately $129.4
million, $121.4 million and $123.9 million, respectively.
5. Trade Accounts Payable And Accrued Expenses
Trade accounts payable and accrued expenses are comprised of the
following (in thousands of dollars):
February 1, 1997 February 3, 1996
Trade accounts payable $342,238 $376,363
Accrued expenses:
Salaries, wages, and employee benefits 51,569 46,120
Taxes, other than income 41,528 48,644
Interest 34,969 30,370
Rent 13,105 13,688
Other 53,286 43,826
$536,695 $559,011
6. Income Taxes
The provision for Federal and state income taxes is summarized as follows
(in thousands of dollars):
Fiscal 1996 Fiscal 1995 Fiscal 1994
Current:
Federal $117,230 $138,102 $120,200
State 10,285 18,700 16,300
127,515 156,802 136,500
Deferred:
Federal 11,310 (47,832) 16,400
State 1,315 (6,500) 1,420
12,625 (54,332) 17,820
$140,140 $102,470 $154,320
A reconciliation between income taxes computed using the effective income
tax rate and the Federal statutory income tax rates is presented below
(in thousands of dollars):
Fiscal 1996 Fiscal 1995 Fiscal 1994
Income tax at the statutory
Federal rate $132,377 $ 94,379 $142,139
State income taxes net of
Federal benefit 7,584 7,970 10,686
Other 179 121 1,495
$140,140 $102,470 $154,320
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities as of February
1, 1997 and February 3, 1996 are as follows (in thousands of dollars):
February 1, 1997 February 3, 1996
Property and equipment basis and
depreciation differences $244,076 $213,497
State income taxes 21,111 28,466
Differences between book and tax
basis of inventory 13,304 20,191
Other 3,016 5,606
Total deferred tax liabilities 281,507 267,760
Accruals not currently deductible (18,715) (16,985)
State income taxes (1,698) (2,306)
Total deferred tax assets (20,413) (19,291)
Net deferred tax liability $261,094 $248,469
Deferred tax assets and liabilities are presented as follows in the
accompanying consolidated balance sheets (in thousands of dollars):
February 1, 1997 February 3, 1996
Net deferred tax liability - noncurrent $261,094 $252,503
Less net deferred tax asset - current - (4,034)
Net deferred tax liability $261,094 $248,469
Income taxes paid during fiscal 1996, 1995 and 1994 were approximately
$116.4 million, $158.0 million and $131.1 million, respectively.
7. Stockholders' Equity
Capital stock is comprised of the following:
Par Shares Shares Issued and Outstanding
Type Value Authorized February 1, 1997 February 3, 1996
Preferred (5% cumulative) $100 5,000 4,400 4,400
Additional preferred $.01 10,000,000
Class A, common $.01 289,000,000 109,594,496 109,070,691
Class B, common $.01 11,000,000 4,016,929 4,016,929
Holders of Class A are empowered as a class to elect one-third of the
members of the Board of Directors and the holders of Class B are empowered as a
class to elect two-thirds of the members of the Board of Directors. Shares of
Class B are convertible at the option of any holder thereof into shares of
Class A at the rate of one share of Class B for one share of Class A.
8. Stock Options
The Company's 1990 Incentive and Nonqualified Stock Option Plan provides
for the granting of options to purchase 12 million shares of Class A common
stock to certain key employees of the Company. Exercise and vesting terms for
options granted under this plan are determined at each grant date. All options
were granted at not less than fair market value at dates of grant. At the end of
fiscal 1996, 2,906,760 shares were available for grant under the plan and
9,965,445 shares of Class A common stock were reserved for issuance under the
1990 stock option plan.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), was effective for the Company for fiscal 1996.
SFAS No. 123 encourages (but does not require) compensation expense to be
measured based on the fair value of the equity instrument awarded. In accordance
with APB No. 25, no compensation cost has been recognized in the Consolidated
Statements of Income for the Company's stock option plans. 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 net income would
have been $229 million and $164 million for 1996 and 1995, respectively, and
the earnings per share would have been $2.01 and $1.45 for 1996 and 1995,
respectively. This pro forma information may not be representative of the
amounts to be expected in future years as the fair value method of accounting
prescribed by SFAS No. 123 has not been applied to options granted prior to
1995.
Stock option transactions are summarized below:
1996 1995 1994
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Fixed Options Shares Price Shares Price Shares Price
Outstanding,
beginning of year 6,448,006 $33.08 4,537,521 $35.63 2,630,026 $39.26
Granted 1,896,030 36.45 1,990,450 27.45 1,975,680 30.93
Exercised (848,366) 31.69 - - (12,500) 31.25
Forfeited (436,985) 37.91 (79,965) 37.69 (55,685) 40.95
Outstanding,
end of year 7,058,685 $33.85 6,448,006 $33.08 4,537,521 $35.63
Options exercisable
at year-end 3,079,350 $35.57 3,946,866 $35.52 3,984,866 $35.56
Weighted-average fair
value of options granted
during the year $12.19 $ 9.26 $ 7.96
The following table summarizes information about stock options outstanding
at February 1, 1997:
Options Outstanding Options Exercisable
Weighted-Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at February 1, 1997 Life (Yrs) Price at February 1, 1997 Price
$27.25-$31.25 3,566,315 3.6 $29.05 1,453,350 $30.87
$37.38-$45.13 3,492,370 3.2 38.76 1,626,000 39.77
7,058,685 3.4 $33.85 3,079,350 $35.57
The fair value of each option grant is estimated on the date of each grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1996, 1995 and 1994, respectively:
risk-free interest rate 6.27%, 6.32% and 6.23%; expected life 4.3 years,
4.3 years and 2.8 years; expected volatility of 29.4%, 29.9% and 29.3%;
dividend yield .38%, .44% and .32%. The fair values generated by the
Black-Scholes model may not be indicative of the future benefit, if any, that
may be received by the option
holder.
9. Capital Leases
Future minimum payments under capital leases as of February 1, 1997 are
as follows (in thousands of dollars):
Fiscal Year Amount
1997 $ 2,987
1998 2,987
1999 2,710
2000 2,627
2001 2,371
After 2001 13,463
Total minimum lease payments 27,145
Less amount representing interest (11,926)
Present value of net minimum lease payments
(of which $1,529 is currently payable) $ 15,219
10. Operating Leases And Commitments
Rental expense consists of the following (in thousands of dollars):
Fiscal 1996 Fiscal 1995 Fiscal 1994
Operating leases:
Buildings:
Minimum rentals $28,842 $30,034 $33,290
Contingent rentals 12,482 13,625 13,456
Equipment 13,100 14,015 16,910
54,424 57,674 63,656
Contingent rentals on capital leases 1,342 1,161 1,260
$55,766 $58,835 $64,916
Contingent rentals on certain leases are based on a percentage of annual
sales in excess of specified amounts. Other contingent rentals are based
entirely on a percentage of sales.
The future minimum rental commitments as of February 1, 1997 for all
noncancelable operating leases for buildings and equipment are as follows
(in thousands):
Fiscal Year Amount
1997 $ 29,444
1998 26,241
1999 24,746
2000 24,093
2001 22,857
After 2001 138,904
$266,285
Renewal options from three to 25 years exist on the majority of leased
properties. At February 1, 1997, the Company is committed to incur costs of
approximately $309 million to acquire, complete and furnish certain stores.
11. Fair Value Disclosures
The estimated fair values of financial instruments which are presented herein
have been determined by the Company using available market information and
appropriate valuation methodologies. However, considerable judgment is required
in interpreting market data to develop estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of amounts the Company
could realize in a current market exchange.
The fair value of the Company's cash and cash equivalents, trade accounts
receivable and commercial paper borrowings approximates their carrying values
at February 1, 1997 and February 3, 1996 due to the short-term maturities of
these instruments. The fair value of the Company's long-term debt is based on
market prices or dealer quotes (for publicly traded unsecured notes) and on
discounted future cash flows using current interest rates for financial
instruments with similar characteristics and maturity (for bank notes and
mortgage notes). The fair value of the Company's long-term debt at
February 1, 1997 and February 3, 1996 was $1,435 million and $1,431 million,
respectively. The carrying value of the Company's long-term debt at
February 1, 1997 and February 3, 1996 was $1,355 million and $1,289 million,
respectively.
12. Quarterly Results Of Operations (Unaudited)
The following is a tabulation of the unaudited quarterly results of
operations for the years ended February 1, 1997 and February 3, 1996 (in
thousands, except per share data):
Fiscal 1996 Three Months Ended
May 4 August 3 November 2 February 1
Net sales $1,453,302 $1,340,326 $1,496,578 $1,937,379
Gross profit 497,505 468,522 491,455 645,338
Net income 56,401 39,526 31,618 111,076
Income per common share .50 .34 .28 .97
Fiscal 1995 Three Months Ended
April 29 July 29 October 28 February 3
Net sales $1,326,754 $1,265,066 $1,405,626 $1,920,592
Gross profit 444,826 440,120 490,101 649,205
Net income 48,379 38,633 51,025 29,146(a)
Income per common share .43 .34 .45 .26
(a) Includes a $78.5 million charge for the early adoption of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." See Note 2.
Annual Meeting And General Information
Annual Meeting
Saturday, May 17, 1997, at 9:30 a.m., Auditorium, Dillard's Corporate Office
1600 Cantrell Road, Little Rock, Arkansas 72201
Form 10-K
Copies of the Company's 10-K Annual Report may be obtained by written
request to:
James I. Freeman, Senior Vice President and Chief Financial Officer
Post Office Box 486, Little Rock, Arkansas 72203
Corporate Headquarters
1600 Cantrell Road, Little Rock, Arkansas 72201
Mailing Address
Post Office Box 486, Little Rock, Arkansas 72203
Telephone: 501-376-5200
Telex: 910-722-7322
Fax: 501-376-5917
Transfer Agent And Registrar
Boatmen's Trust Company, Post Office Box 14737, St. Louis, Missouri 63178
Listing
New York Stock Exchange, Ticker Symbol "DDS"
Stock Prices and Dividends by Quarter
Sales Prices - Common Shares
1996 1995 Dividends Per Share
Quarter High Low High Low 1996 1995
First $41.38 $29.75 $29.00 $24.00 $0.03 $0.03
Second 40.38 31.38 32.13 24.63 0.03 0.03
Third 34.88 30.88 33.88 27.13 0.04 0.03
Fourth 32.63 29.13 30.63 27.13 0.04 0.03