SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 2, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 1-6140
DILLARD'S, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 71-0388071
(State or other (IRS Employer
jurisdiction of incorporation Identification Number)
or organization)
1600 CANTRELL ROAD, LITTLE ROCK, ARKANSAS 72201
(Address of principal executive offices)
(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 period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes x No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS A COMMON STOCK as of August 2, 1997 106,587,489
CLASS B COMMON STOCK as of August 2, 1997 4,016,929
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
CONSOLIDATED BALANCE SHEETS
DILLARD'S, INC.
(Unaudited)
(Thousands)
August 2 February 1 August 3
1997 1997 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $73,225 $64,094 $68,768
Trade accounts receivable 1,031,524 1,130,504 1,008,554
Merchandise inventories 1,750,239 1,556,958 1,618,252
Other current assets 9,281 9,080 13,415
TOTAL CURRENT ASSETS 2,864,269 2,760,636 2,708,989
INVESTMENTS AND OTHER ASSETS 90,403 107,157 88,903
PROPERTY AND EQUIPMENT, NET 2,256,011 2,131,843 2,025,875
CONSTRUCTION IN PROGRESS 131,816 55,024 77,053
BUILDINGS UNDER CAPITAL LEASES 4,581 5,066 5,766
$5,347,080 $5,059,726 $4,906,586
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses $629,502 $536,695 $589,538
Commercial paper 234,829 128,738 129,952
Federal and state income taxes 18,513 46,220 2,429
Current portion of long-term debt 156,564 181,564 81,089
Current portion of capital lease obligations 1,589 1,529 1,596
TOTAL CURRENT LIABILITIES 1,040,997 894,746 804,604
LONG-TERM DEBT 1,319,758 1,173,018 1,279,648
CAPITAL LEASE OBLIGATIONS 12,963 13,690 14,789
DEFERRED INCOME TAXES 261,094 261,094 226,689
STOCKHOLDERS' EQUITY
Preferred Stock 440 440 440
Common Stock 1,138 1,136 1,136
Additional paid-in capital 643,987 641,388 638,663
Retained earnings 2,167,838 2,074,214 1,940,617
Less Treasury Stock (101,135)
2,712,268 2,717,178 2,580,856
$5,347,080 $5,059,726 $4,906,586
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
DILLARD'S, INC.
(Unaudited)
(Thousands, except per share data)
Three Months Ended Six Months Ended Twelve Months Ended
August 2 August 3 August 2 August 3 August 2 August 3
1997 1996 1997 1996 1997 1996
Net sales $1,453,152 $1,340,326 $2,968,496 $2,793,628 $6,402,453 $6,119,846
Service charges, interest, and other 46,188 46,503 93,401 94,954 182,922 181,706
1,499,340 1,386,829 3,061,897 2,888,582 6,585,375 6,301,552
Cost and expenses:
Cost of sales 946,119 871,804 1,941,322 1,827,601 4,238,486 4,014,513
Advertising, selling, administrative
and general expenses 387,191 360,917 769,781 727,270 1,580,961 1,505,295
Depreciation and amortization 51,326 50,243 102,528 100,577 195,670 194,212
Rentals 10,837 10,905 21,467 22,063 55,170 58,084
Interest and debt expense 33,480 30,224 63,939 58,809 125,729 121,316
Impairment charges 0 0 0 0 0 126,559
1,428,953 1,324,093 2,899,037 2,736,320 6,196,016 6,019,979
INCOME BEFORE INCOME TAXES 70,387 62,736 162,860 152,262 389,359 281,573
Income taxes 26,045 23,210 60,260 56,335 144,065 105,475
NET INCOME 44,342 39,526 102,600 95,927 245,294 176,098
Retained earnings at beginning
of period 2,127,980 1,904,508 2,074,214 1,851,507 1,940,617 1,778,129
2,172,322 1,944,034 2,176,814 1,947,434 2,185,911 1,954,227
Cash dividends declared (4,484) (3,417) (8,976) (6,817) (18,073) (13,610)
RETAINED EARNINGS AT END
OF PERIOD $2,167,838 $1,940,617 $2,167,838 $1,940,617 $2,167,838 $1,940,617
Net income per common share $0.40 $0.35 $0.91 $0.84 $2.17 $1.55
Cash dividends declared per common share $0.04 $0.03 $0.08 $0.06 $0.16 $0.12
Average shares outstanding 111,669 114,361 112,332 114,077 113,116 113,645
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
DILLARD'S, INC.
(Unaudited)
(Thousands)
Six Months Ended
August 2 August 3
1997 1996
OPERATING ACTIVITITES
Net income $102,600 $95,927
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 103,284 101,326
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 98,980 95,021
Increase in merchandise inventories and
other current assets (193,482) (135,459)
Decrease (Increase) in investments and other assets 15,998 (4,880)
Increase (Decrease) in trade accounts payable and
accrued expenses and income taxes 69,654 (44,690)
NET CASH PROVIDED BY OPERATING ACTIVITIES 197,034 107,245
INVESTING ACTIVITIES
Purchase of property and equipment (303,003) (173,733)
NET CASH USED IN INVESTING ACTIVITIES (303,003) (173,733)
FINANCING ACTIVITIES
Net increase in commercial paper 106,091 4,642
Proceeds from long-term borrowings 200,000 200,000
Principal payments on long-term debt and
capital lease obligations (78,927) (134,430)
Dividends paid (13,530) (6,817)
Common stock sold 2,601 13,419
Purchase of treasury stock (101,135)
NET CASH PROVIDED BY FINIANCING ACTIVITIES 115,100 76,814
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,131 10,326
Cash and cash equivalents at beginning of period 64,094 58,442
CASH AND CASH EQUIVALENTS AT END OF PERIOD $73,225 $68,768
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. 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
six month period ended August 2, 1997 are not necessarily
indicative of the results that may be expected for the fiscal
year ending January 31, 1998 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, 1997.
2. On May 19, 1997, the Company amended its Certificate of
Incorporation in order to change its name to Dillard's, Inc.
3. On February 4, 1997, the Company issued $100 million aggregate
principal amount of its 7.15% notes due February 1, 2007. On
May 15, 1997, the Company issued $100 million aggregate
principal amount of its 7.75% notes due May 15, 2027. The
notes were sold in underwritten public offerings.
4. On February 21, 1997, the Board of Directors authorized the
implementation of a Class A common stock repurchase program of
up to $300 million. For the six months ended August 2, 1997,
a total of 3.2 million shares were purchased for a total of
$101.1 million.
5. In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 131,
Disclosures about Segments of an Enterprise and Related
Information, which will be effective for financial statements
beginning after December 15, 1997. SFAS No. 131 redefines how
operating segments are determined and requires expanded
quantitative and qualitative disclosures relating to a
company's operating segments. The Company has not yet
completed its analysis of how its financial statements will be
affected by SFAS No. 131.
ITEM 2 Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
Results of Operations
The following table sets forth operating results expressed as a percentage
of net sales for the periods indicated:
Three Months Ended Six Months Ended Twelve Months Ended
August 2 August 3 August 2 August 3 August 2 August 3
1997 1996 1997 1996 1997 1996
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 65.1% 65.0% 65.4% 65.5% 66.2% 65.6%
Gross profit 34.9% 35.0% 34.6% 34.5% 33.8% 34.4%
Advertising, selling, administrative
and general expenses 26.6% 26.9% 25.9% 26.0% 24.7% 24.6%
Depreciation and amortization 3.5% 3.8% 3.5% 3.6% 3.1% 3.2%
Rentals 0.8% 0.8% 0.7% 0.8% 0.8% 0.9%
Interest and debt expense 2.3% 2.3% 2.2% 2.1% 2.0% 2.0%
Impairment charges 2.1%
Total operating expenses 33.2% 33.8% 32.3% 32.5% 30.6% 32.8%
Other income 3.2% 3.5% 3.2% 3.4% 2.9% 3.0%
Income before income taxes 4.9% 4.7% 5.5% 5.4% 6.1% 4.6%
Income taxes 1.8% 1.7% 2.0% 2.0% 2.3% 1.7%
Net income 3.1% 3.0% 3.5% 3.4% 3.8% 2.9%
Sales for the second quarter of 1997 were $1,453.2 million as
compared to $1,340.3 million for the second quarter of 1996. This
was an increase of 8%. The sales increase for comparable stores
was 5%. For the six month period ended August 2, 1997 sales
increased 6% over the first six months of 1996. The comparable
stores increase for this period was 2%. For the twelve month
period ended August 2, 1997 sales increased 5% over the same period
for 1996. The comparable stores increase for this period was 1%.
The majority of the increase in sales on a comparable store basis
was attributable to an increase in the volume of goods sold rather
than an increase in the price of goods.
Cost of sales increased only slightly from 65.0% of net sales for
the second quarter of 1996 to 65.1% for the second quarter of 1997.
For the six months ended August 2, 1997 and August 3, 1996, the
cost of sales decreased only slightly from 65.5% of net sales in
1996 to 65.4% of net sales in 1997. For the twelve months ended
August 2, 1997 and August 3, 1996, the cost of sales increased from
65.6% of net sales in 1996 to 66.2% of net sales in 1997. The
increase for this twelve month period was caused by a higher level
of markdowns in the current year versus the prior year.
Advertising, selling, administrative and general (SG&A) expenses
decreased from 26.9% of net sales for the second quarter of 1996 to
26.6% of net sales for the second quarter of 1997. The Company saw
improvement in payroll expense and bad debt expense components of
SG&A expense as a percentage of sales compared to the prior year.
For the six months ended August 2, 1997 and August 3, 1996, SG&A
expense decreased slightly from 26.0% of net sales in 1996 to 25.9%
of net sales in 1997. For the twelve months ended August 2, 1997
and August 3, 1996, SG&A expense increased slightly from 24.6% of
net sales in 1996 to 24.7% of net sales in 1997.
Depreciation and amortization expense decreased slightly as a
percentage of sales from 1996 in the three, six and twelve month
periods ended August 2, 1997. This decrease was due to the write
down of certain impaired assets in the fourth quarter of 1995,
somewhat offset by the fact that a higher proportion of the
Company's properties are owned rather than leased.
Rental expense was constant at .8% of net sales for the three
months ended August 2, 1997 and August 3, 1996. For the six months
ended August 2, 1997 and August 3, 1996 rental expense decreased
from .8% of net sales in 1996 to .7% of net sales in 1997. For the
twelve months ended August 2, 1997 and August 3, 1996, the decrease
was from .9% to .8% of net sales. This was due to a higher
proportion of the Company's properties being owned rather than
leased.
Interest and debt expense was constant as a percentage of net sales
for the three and twelve months ended August 2, 1997 compared to
the three and twelve months ended August 3, 1996. For the six
months ended August 2, 1997 and August 3, 1996 interest and debt
expense as a percentage of net sales increased only slightly from
2.1% in 1996 to 2.2% in 1997.
Service charges, interest and other income decreased from 3.5% of
net sales for the second quarter of 1996 to 3.2% of net sales for
the second quarter of 1997. For the six months ended August 2,
1997 and August 3, 1996 the decrease was from 3.4% of net sales in
1996 to 3.2% of net sales in 1997. For the twelve months ended
August 2, 1997 and August 3, 1996 this decrease was from 3.0% to
2.9%. The primary cause for this decrease was a decline in
proprietary credit card sales as a percentage of total sales.
The effective federal and state income tax rate was 37% for the
second quarter of 1997 and 1996.
Financial Condition
The Company's working capital was $1.8 billion at August 2, 1997,
$1.9 billion at February 1, 1997, and $1.9 billion at August 3,
1996. The current ratio for each of these periods was 2.8, 3.1 and
3.4, respectively. The changes in working capital and current
ratio were caused by a higher level of inventory and an increase in
trade accounts payable and commercial paper at August 2, 1997
compared to February 1, 1997 and August 3, 1996.
The long-term debt to capitalization ratio was 33.0%, 30.4% and
33.4% at August 2, 1997, February 1, 1997, and August 3, 1996,
respectively. The ratio of long-term debt to capitalization is
calculated by dividing the total amount of long-term debt and
capitalized lease obligations by the sum of the total amount of
long-term debt and capitalized lease obligations plus total equity.
This ratio has increased due to the issuance of long-term debt as
described below as well as the repurchase of $101.1 million of the
Company's Class A common stock during 1997.
On February 4, 1997, the Company issued $100 million 7.15% notes
due February 1, 2007. On May 15, 1997, the Company issued $100
million 7.75% notes due May 15, 2027. The proceeds were used to
reduce commercial paper borrowings.
The Company invested $303 million in capital expenditures for the
six months ended August 2, 1997 as compared to $173.7 million for
the six months ended August 3, 1996. In the first half of 1997,
the Company opened five new stores and completed the acquisition of
seven stores in Virginia from Proffitt's, Inc., ten Mervyn's stores
in Florida and three Macy's stores in Houston. Of these acquired
stores, only two of the Proffitt's stores were opened prior to
August 2, 1997. For the balance of the year, the Company plans to
open seven new stores. Additionally, the Company plans to remodel
and open the balance of the Proffitt's stores, the Macy's stores
and seven of the Mervyn's stores. Also, the Company will expand
and remodel two stores and close two stores. In 1996, the Company
opened sixteen new stores (one of which was a replacement store),
expanded six stores and closed three stores.
Merchandise inventories increased by 8% from $1.6 billion at August
3, 1996 to $1.8 billion at August 2, 1997. The Company operated 11
more stores at August 2, 1997 versus August 3, 1996. This was the
primary reason for the increase in inventory. On a comparable
store basis, the rate of increase in merchandise inventories was
1.9%.
At August 2, 1997, the Company had an outstanding shelf
registration for unsecured notes in the amount of $400 million.
Fluctuations in certain other balance sheet accounts between
February 1, 1997 and August 2, 1997 reflect normal seasonal
variations within the retail industry. The levels of merchandise
inventories and accounts receivable fluctuate due to the seasonal
nature of the retail business. Along with the fluctuations in
these current assets, there is also a corresponding fluctuation in
trade accounts payable and commercial paper.
ITEM 3 Quantitative and Qualitative Disclosure About Market Risk.
Interim information is not required until after the first fiscal
year end in which this item is applicable.
Part II OTHER INFORMATION
ITEM 4 Submission of matters to a Vote of Security Holders
The annual meeting of the stockholders of the Company was held on
May 17, 1997. The matters submitted to a vote of the stockholders
were as follows: election of directors, proposal to change the name
of the Company to Dillard's, Inc., proposal to amend the 1990
Incentive and Nonqualified Stock Option Plan, proposal requesting
the preparation of an employment practices report, proposal
concerning child/convict labor and proposal concerning Class A
independent directors.
Election of Directors
Nominee For Against Abstain
Class A Nominees
Robert C. Connor 96,199,728 2,996,850 0
Will D. Davis 95,510,250 3,686,328 0
John Paul Hammerschmidt 94,202,666 4,993,912 0
William B. Harrison, Jr. 76,142,556 23,054,022 0
Jackson T. Stephens 96,208,223 2,988,355 0
Class B Nominees
William Dillard 4,007,760 0 0
Calvin N. Clyde, Jr. 4,007,760 0 0
Drue Corbusier 4,007,760 0 0
Alex Dillard 4,007,760 0 0
William Dillard, II 4,007,760 0 0
Mike Dillard 4,007,760 0 0
James I. Freeman 4,007,760 0 0
John H. Johnson 4,007,760 0 0
E. Ray Kemp 4,007,760 0 0
William H. Sutton 4,007,760 0 0
Other Proposals
Company Name Change 102,644,765 264,918 294,654
Amend 1990 Incentive & Nonqualified
Stock Option Plan 100,414,795 2,251,808 537,733
Employment Practices
Report 10,671,833 76,532,656 8,969,289
Child/Convict Labor 3,854,812 81,456,017 10,862,900
Class A independent
directors 41,241,623 48,834,892 2,089,504
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 Commission as follows:
Six Months Ended Fiscal Year Ended
Aug. 2 Aug. 3 Feb.1 Feb. 3 Jan. 28 Jan. 29 Jan. 30
1997 1996 1997 1996 1995 1994 1993
3.21 3.20 3.61 2.86 3.72 3.57 3.59
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibit (10): 1990 Incentive and NonQualified Stock Option Plan
Exhibit (11): Statement re: Computation of Per Share Earnings
Exhibit (12): Statement re: Computation of Ratio of
Earnings to Fixed Charges
(b) Reports on Form 8-K filed during the second quarter:
The Company filed a report on May 13, 1997 relating to the
issuance of $100 million aggregate principal amount of 7.75%
Notes maturing on May 15, 2027.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DILLARD'S, INC.
(Registrant)
DATE: September 12, 1997 /s/ James I. Freeman
James I. Freeman
Senior Vice President & Chief Financial Officer
(Principal Financial & Accounting Officer)
EXHIBIT INDEX
Exhibits to Form 10-Q
Exhibit Number Exhibit
10 1990 Incentive and NonQualified Stock Option Plan
11 Statement re: Computation of Per Share Earnings
12 Statement re: Computation of Ratio of Earnings
to Fixed Charges