<PAGE>
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 November 2, 1996
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 DEPARTMENT STORES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 71-0388071
(State or other (IRS Employer
jurisdiction of Identification Number)
incorporation 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 November 2, 1996 109,557,787
CLASS B COMMON STOCK as of November 2, 1996 4,016,929
<PAGE>
<TABLE>
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
CONSOLIDATED BALANCE SHEETS
DILLARD DEPARTMENT STORES, INC.
(Unaudited)
(Thousands)
November 2 February 3 October 28
1996 1996 1995
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $65,217 $58,442 $59,351
Trade accounts receivable 1,028,652 1,103,575 1,017,268
Merchandise inventories 2,046,085 1,486,045 1,892,616
Other current assets 22,982 10,163 20,631
TOTAL CURRENT ASSETS 3,162,936 2,658,225 2,989,866
INVESTMENTS AND OTHER ASSETS 102,129 84,772 79,189
PROPERTY AND EQUIPMENT, NET 2,110,737 1,980,790 2,056,578
CONSTRUCTION IN PROGRESS 32,743 43,552 23,611
BUILDINGS UNDER CAPITAL LEASES 5,411 11,196 21,617
$5,413,956 $4,778,535 $5,170,861
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses $950,033 $559,011 $900,455
Commercial paper 237,730 125,310 192,848
Federal and state income taxes 19,617 51,832 25,606
Current portion of long-term debt 131,088 131,378 132,029
Current portion of capital lease obligations 1,556 2,149 2,154
TOTAL CURRENT LIABILITIES 1,340,024 869,680 1,253,092
LONG-TERM DEBT 1,225,004 1,157,864 1,151,204
CAPITAL LEASE OBLIGATIONS 14,243 20,161 20,696
DEFERRED INCOME TAXES 226,689 252,503 294,450
STOCKHOLDERS' EQUITY
Preferred stock 440 440 440
Common stock 1,136 1,131 1,130
Additional paid-in capital 638,728 625,249 624,086
Retained earnings 1,967,692 1,851,507 1,825,763
2,607,996 2,478,327 2,451,419
$5,413,956 $4,778,535 $5,170,861
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
DILLARD DEPARTMENT STORES, INC.
(Unaudited)
(Thousands, except per share data)
Three Months Ended Nine Months Ended Twelve Months Ended
November 2 October 28 November 2 October 28 November 2 October 28
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net sales (including leased
departments) $1,496,578 $1,405,626 $4,290,206 $3,997,446 $6,210,798 $5,741,362
Service charges, interest, and other 46,689 45,967 141,643 138,315 182,428 182,755
1,543,267 1,451,593 4,431,849 4,135,761 6,393,226 5,924,117
Cost and expenses:
Cost of sales 1,005,123 915,525 2,832,724 2,622,399 4,104,111 3,742,901
Advertising, selling, administrative
and general expenses 394,606 359,743 1,121,876 1,018,164 1,540,158 1,389,151
Depreciation and amortization 52,539 53,496 153,116 151,666 193,255 199,270
Rentals 10,503 11,101 32,566 33,915 57,486 60,648
Interest and debt expense 30,308 29,433 89,117 86,980 122,191 117,693
Impairment charges 126,559
1,493,079 1,369,298 4,229,399 3,913,124 6,143,760 5,509,663
INCOME BEFORE INCOME TAXES 50,188 82,295 202,450 222,637 249,466 414,454
Federal and state income taxes 18,570 31,270 74,905 84,600 92,775 157,490
NET INCOME 31,618 51,025 127,545 138,037 156,691 256,964
Retained earnings at beginning
of period 1,940,617 1,778,129 1,851,507 1,697,911 1,825,763 1,582,385
Cash dividends declared (4,543) (3,391) (11,360) (10,185) (14,762) (13,586)
RETAINED EARNINGS AT END
OF PERIOD $1,967,692 $1,825,763 $1,967,692 $1,825,763 $1,967,692 $1,825,763
Net income per common share $0.28 $0.45 $1.12 $1.22 $1.38 $2.27
Cash dividends declared per common share $0.04 $0.03 $0.10 $0.07 $0.12 $0.12
Average shares outstanding 114,005 113,264 114,053 113,139 113,830 113,106
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
DILLARD DEPARTMENT STORES, INC.
(Unaudited)
(Thousands)
Nine Months Ended
November 2 October 28
1996 1995
OPERATING ACTIVITITES
Net income $127,545 $138,037
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 154,224 152,789
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 74,923 84,836
Increase in merchandise inventories and
other current assets (572,859) (541,644)
Decrease in investments and other assets (18,465) (11,502)
Increase in trade accounts payable and
accrued expenses and income taxes 332,993 315,095
NET CASH PROVIDED BY OPERATING ACTIVITIES 98,361 137,611
INVESTING ACTIVITIES
Purchase of property and equipment (266,469) (269,327)
NET CASH USED IN INVESTING ACTIVITIES (266,469) (269,327)
FINANCING ACTIVITIES
Net increase in commercial paper 112,420 102,942
Proceeds from long-term borrowings 200,000 109,150
Principal payments on long-term debt and
capital lease obligations (139,661) (61,925)
Dividends paid (11,360) (10,195)
Common stock sold 13,484
NET CASH PROVIDED BY FINANCING ACTIVITIES 174,883 139,972
INCREASE IN CASH AND CASH EQUIVALENTS 6,775 8,256
Cash and cash equivalents at beginning of period 58,442 51,095
CASH AND CASH EQUIVALENTS AT END OF PERIOD $65,217 $59,351
See notes to consolidated financial statements.
<PAGE>
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 nine month period ended November 2, 1996 are not necessarily indicative
of the results that may be expected for the fiscal year ended February 1,
1997 due to the seasonal nature of the business. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Company's annual report on Form 10-K for the fiscal year ended
February 3, 1996.
2. The retail last-in, first-out (LIFO) inventory method is used to value
merchandise inventories. Under this method, at November 2, 1996 the LIFO
cost of merchandise inventories was approximately equal to the first-in,
first-out (FIFO) cost. At October 28, 1995, the LIFO cost of merchandise
inventories was approximately $1.8 million less than the FIFO cost. At each
of February 3, 1996 and January 28, 1995, the LIFO cost of merchandise
inventories was approximately equal to FIFO cost.
3. Net sales include leased department sales of $6.3 million and $7.3
million for the quarters ended November 2, 1996 and October 28, 1995,
respectively. Leased department sales for the nine months ended November 2,
1996 and October 28, 1995 were $21.1 million and $23.2 million, respectively.
Leased department sales for the twelve months ended November 2, 1996 and
October 28, 1995 were $36.4 million and $41.6 million, respectively.
4. In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," which is effective for the Company beginning
February 4, 1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not
require) compensation cost to be measured based on fair value of the equity
instrument awarded. Companies are permitted, however, to continue to apply
APB Opinion No. 25, which recognizes compensation cost based on the intrinsic
value of the equity instrument awarded. The Company will continue to apply
APB Opinion No. 25 to its stock based compensation awards to employees and
will disclose the required pro forma effect on net income and earnings per
share.
5. On June 7, 1996, the Company issued $100 million aggregate principal
amount of its 7.375% notes due June 1, 2006. On July 17, 1996, the Company
issued $100 million aggregate principal amount of its 7.75% notes due July
15, 2006. The notes were sold in underwritten public offerings.
<PAGE>
<TABLE>
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 Nine Months Ended Twelve Months Ended
November 2 October 28 November 2 October 28 November 2 October 28
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 67.2 65.1 66.0 65.6 66.1 65.2
Gross Profit 32.8 34.9 34.0 34.4 33.9 34.8
Advertising, selling, administrative
and general expenses 26.4 25.6 26.1 25.5 24.8 24.2
Depreciation and amortization 3.5 3.8 3.6 3.7 3.1 3.5
Rentals 0.7 0.8 0.8 0.8 0.9 1.1
Interest and debt expense 2.0 2.1 2.1 2.2 2.0 2.0
Impairment charges 0.0 0.0 0.0 0.0 2.0 0.0
Total operating expenses 32.6 32.3 32.6 32.2 32.8 30.8
Other income 3.1 3.2 3.3 3.5 2.9 3.2
Income before income taxes 3.3 5.9 4.7 5.6 4.0 7.2
Federal and state income taxes 1.2 2.2 1.7 2.1 1.5 2.7
Net income 2.1 3.6 3.0 3.5 2.5 4.5
</TABLE>
<PAGE>
Sales for the third quarter of 1996 were $1,496.6 million as compared to
$1,405.6 million for the third quarter of 1995. This is an increase of 6%.
The sales increase for comparable stores was 1%. The nine month sales
increase for 1996 over 1995 was 7%; for comparable stores the increase was
3%. The twelve month sales increase for 1996 over 1995 was 8%; for
comparable stores the increase was 3%. The majority of the increase in
sales on a comparable store basis was attributable to an increase in the
volume of goods rather than an increase in the price of goods.
Cost of sales increased from 65.1% of net sales for the third quarter of 1995
to 67.2% for the third quarter of 1996. For the nine months ended November
2, 1996 the increase was from 65.6% to 66.0% of net sales. For the twelve
months ended November 2, 1996 and October 28, 1995, the cost of sales
increased from 65.2% to 66.1% of net sales. These increases were due to a
higher level of markdowns in the current year than in the prior year.
Advertising, selling, administrative and general expenses increased to 26.4%
of net sales for the third quarter of 1996 compared to 25.6% for the third
quarter of 1995. For the nine months ended November 2, 1996 and October 28,
1995 these expenses increased from 25.5% to 26.1% of net sales. For the
twelve months ended November 2, 1996 and October 28, 1995 these expenses
increased from 24.2% to 24.8% of net sales. The Company expensed the
preopening costs associated with sixteen new stores opened in the first nine
months of 1996. In prior years the Company expensed all preopening costs for
the year in the fourth quarter. Additionally, the bad debt expense increased
as a percent of sales for the nine months ended November 2, 1996 as compared
to the nine months ended October 28, 1995. Also, payroll expense in the
selling area was higher as a percentage of sales in 1996 compared to 1995.
Depreciation and amortization expense decreased slightly as a percentage of
sales from 1995 in the three, nine and twelve month periods ended November 2,
1996. 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 were owned rather than leased.
Rental expense decreased slightly from .8% of net sales for the third quarter
of 1995 to .7% for the third quarter of 1996. For the nine months ended
November 2, 1996 and October 28, 1995 these expenses remained constant at
.8% of net sales. For the twelve months ended November 2, 1996 and October
28, 1995 these expenses decreased from 1.1% to .9% of net sales. This was
due to a higher proportion of the Company's properties being owned rather
than leased.
Interest and debt expense decreased from 2.1% of net sales for the third
quarter of 1995 to 2.0% for the third quarter of 1996. For the nine months
ended November 2, 1996 and October 28, 1995, the decrease was from 2.2% to
2.1% of net sales. For the twelve months ended November 2, 1996 and October
28, 1995 the interest and debt expense was 2.0% of net sales. Interest and
debt expense declined as a percentage of net sales due to a lower level of
debt relative to sales, partially offset by higher interest rates on short-
term debt.
Service charges, interest and other income decreased from 3.3% to 3.1% of net
sales for the third quarters in 1996 and 1995. For the nine months ended
November 2, 1996 and October 28, 1995 it decreased from 3.5% to 3.3% of net
sales. For the twelve months ended November 2, 1996 and October 28, 1995
the decrease was from 3.2% 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 three and the
nine months ended November 2, 1996 and 38% for the three and the nine months
ended October 28, 1995.
<PAGE>
Financial Condition
The Company's working capital was $1,822,912,000 at November 2, 1996,
$1,788,545,000 at February 3, 1996, and $1,736,774,000 at October 28, 1995.
The current ratio for each of these periods was 2.4, 3.1 and 2.4,
respectively. The lower current ratio at each of November 2, 1996 and
October 28, 1995 compared to February 3, 1996 was primarily caused by a lower
level of accounts receivable. This fluctuation in the accounts receivable
balance arises from normal seasonal variation within the retail industry.
The ratio of long-term debt to capitalization was 32.2%, 32.2% and 32.3% at
November 2, 1996, February 3, 1996, and October 28, 1995, respectively. The
ratio of long-term debt to capitalization is calculated by dividing the total
amount of long-term debt and capital lease obligations by the sum of the
total amount of long-term debt and capitalized lease obligations plus total
equity.
On June 7, 1996, the Company issued $100 million 7.375% notes due June 1,
2006. On July 17, 1996, the Company issued $100 million 7.75% notes due July
15, 2026. The proceeds were used to reduce commercial paper borrowings.
The Company invested $266,469,000 in capital expenditures for the nine months
ended November 2, 1996 as compared to $269,327,000 for the nine months ended
October 28, 1995. In the first nine months of 1996, the Company opened
sixteen new stores, one of which was a replacement store, and expanded four
existing stores. In 1995, the Company opened eleven new stores, two of which
were replacement stores, and expanded six existing stores.
Merchandise inventories increased by 8% from $1,892,616,000 at October 28,
1995 to $2,046,085,000 at November 2, 1996. The Company operated fifteen
more stores at November 2, 1996 versus October 28, 1995. This was the
primary reason for the increase in inventory. The merchandise inventory in
comparable stores increased by 1% from October 28, 1995 to November 2, 1996.
Fluctuations in certain other balance sheet accounts between February 3, 1996
and November 2, 1996 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.
<PAGE>
PART II OTHER INFORMATION
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:
Nine Months Ended Fiscal Year Ended
November 2 October 28 February 3 January 28 January 29 January 30 February 1
1996 1995 1996 1995 1994 1993 1992
2.92 3.18 2.86 3.72 3.57 3.59 3.41
ITEM 6 Exhibits and Reports on Form 8-K
(a) 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 third quarter:
None.
<PAGE>
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 DEPARTMENT STORES, INC.
(Registrant)
DATE: December 17, 1996 /s/James I. Freeman
James I. Freeman
Senior Vice President & Chief Financial Officer
(Principal Financial & Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibits to Form 10-Q
Exhibit Number Exhibit
11 Statement re: Computation of Per Share Earnings
12 Statement re: Computation of Ratio of Earnings to
Fixed Charges
<PAGE>
<TABLE>
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended Twelve Months Ended
November 2 October 28 November 2 October 28 November 2 October 28
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Average shares outstanding 113,573,347 113,045,656 113,451,037 113,045,656 113,350,655 113,036,321
Net effect of dilutive stock options based
on the treasury stock method using
average market price 431,623 217,961 602,257 92,899 479,241 69,674
Total 114,004,970 113,263,617 114,053,294 113,138,555 113,829,896 113,105,995
Net Income $31,618,000 $51,025,000 $127,545,000 $138,037,000 $156,691,000 $256,964,000
Less preferred dividends (5,500) (5,500) (16,500) (16,500) (22,000) (22,000)
Net income available to common shares $31,612,500 $51,019,500 $127,528,500 $138,020,500 $156,669,000 $256,942,000
Per share $0.28 $0.45 $1.12 $1.22 $1.38 $2.27
</TABLE>
<TABLE>
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED
CHARGES
(Unaudited)
(Dollar amounts in thousands)
Nine Months Ended Fiscal Year Ended
November 2 October 28 February 3 January 28 January 29 January 30 February 1
1996 1995 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated pretax income $202,450 $222,637 $269,653 $406,110 $399,534 $375,330 $322,157
Fixed charges (less capitalized
interest) 99,972 98,285 139,666 145,921 152,568 142,857 128,891
EARNINGS $302,422 $320,922 $409,319 $552,031 $552,102 $518,187 $451,048
Interest $89,117 $86,980 $120,054 $124,282 $130,915 $121,940 $109,386
Capitalized interest 3,484 2,781 3,567 2,545 1,882 1,646 3,574
Interest factor in rent expense 10,855 11,305 19,612 21,639 21,653 20,917 19,505
FIXED CHARGES $103,456 $101,066 $143,233 $148,466 $154,450 $144,503 $132,465
Ratio of earnings to fixed charges 2.92 3.18 2.86 3.72 3.57 3.59 3.41
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> NOV-02-1996
<CASH> 65,217
<SECURITIES> 0
<RECEIVABLES> 1,028,652
<ALLOWANCES> 17,618
<INVENTORY> 2,046,085
<CURRENT-ASSETS> 3,162,936
<PP&E> 3,432,224
<DEPRECIATION> 1,283,333
<TOTAL-ASSETS> 5,413,956
<CURRENT-LIABILITIES> 1,340,024
<BONDS> 1,239,247
0
440
<COMMON> 1,136
<OTHER-SE> 2,606,420
<TOTAL-LIABILITY-AND-EQUITY> 5,413,956
<SALES> 4,290,206
<TOTAL-REVENUES> 4,431,849
<CGS> 2,832,724
<TOTAL-COSTS> 2,832,724
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 52,470
<INTEREST-EXPENSE> 89,117
<INCOME-PRETAX> 202,450
<INCOME-TAX> 74,905
<INCOME-CONTINUING> 127,545
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127,545
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12
</TABLE>
