<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 August 3, 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 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 3, 1996 109,555,437
CLASS B COMMON STOCK as of August 3, 1996 4,016,929
<PAGE>
<TABLE>
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
CONSOLIDATED BALANCE SHEETS
DILLARD DEPARTMENT STORES, INC.
(Unaudited)
(Thousands)
August 3 February 3 July 29
1996 1996 1995
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $68,768 $58,442 $48,564
Trade accounts receivable 1,008,554 1,103,575 996,252
Merchandise inventories 1,618,252 1,486,045 1,458,574
Other current assets 13,415 10,163 10,439
TOTAL CURRENT ASSETS 2,708,989 2,658,225 2,513,829
INVESTMENTS AND OTHER ASSETS 88,903 84,772 73,783
PROPERTY AND EQUIPMENT, NET 2,025,875 1,980,790 1,973,515
CONSTRUCTION IN PROGRESS 77,053 43,552 54,528
BUILDINGS UNDER CAPITAL LEASES 5,766 11,196 22,152
$4,906,586 $4,778,535 $4,637,807
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses $589,538 $559,011 $572,831
Commercial paper 129,952 125,310 51,588
Federal and state income taxes 2,429 51,832 7,259
Current portion of long-term debt 81,089 131,378 130,768
Current portion of capital lease obligations 1,596 2,149 2,160
TOTAL CURRENT LIABILITIES 804,604 869,680 764,606
LONG-TERM DEBT 1,279,648 1,157,864 1,153,732
CAPITAL LEASE OBLIGATIONS 14,789 20,161 21,234
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 638,663 625,249 624,086
Retained earnings 1,940,617 1,851,507 1,778,129
2,580,856 2,478,327 2,403,785
$4,906,586 $4,778,535 $4,637,807
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 Six Months Ended Twelve Months Ended
August 3 July 29 August 3 July 29 August 3 July 29
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net sales $1,340,326 $1,265,066 $2,793,628 $2,591,820 $6,119,846 $5,669,366
Service charges, interest, and other 46,503 44,826 94,954 92,348 181,706 181,563
1,386,829 1,309,892 2,888,582 2,684,168 6,301,552 5,850,929
Cost and expenses:
Cost of sales 871,804 824,946 1,827,601 1,706,874 4,014,513 3,693,625
Advertising, selling, administrative
and general expenses 360,917 330,961 727,270 658,421 1,505,295 1,365,737
Depreciation and amortization 50,243 50,354 100,577 98,170 194,212 196,740
Rentals 10,905 11,185 22,063 22,814 58,084 61,723
Interest and debt expense 30,224 30,133 58,809 57,547 121,316 119,008
Impairment charges 0 0 0 0 126,559 0
1,324,093 1,247,579 2,736,320 2,543,826 6,019,979 5,436,833
INCOME BEFORE INCOME TAXES 62,736 62,313 152,262 140,342 281,573 414,096
Income taxes 23,210 23,680 56,335 53,330 105,475 157,355
NET INCOME 39,526 38,633 95,927 87,012 176,098 256,741
Retained earnings at beginning
of period 1,904,508 1,742,899 1,851,507 1,697,911 1,778,129 1,534,973
1,944,034 1,781,532 1,947,434 1,784,923 1,954,227 1,791,714
Cash dividends declared (3,417) (3,403) (6,817) (6,794) (13,610) (13,585)
RETAINED EARNINGS AT END
OF PERIOD $1,940,617 $1,778,129 $1,940,617 $1,778,129 $1,940,617 $1,778,129
Net income per common share $0.35 $0.34 $0.84 $0.77 $1.55 $2.27
Cash dividends declared per common share $0.03 $0.03 $0.06 $0.06 $0.12 $0.12
Average shares outstanding 114,361 113,106 114,077 113,076 113,645 113,041
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
DILLARD DEPARTMENT STORES, INC.
(Unaudited)
(Thousands)
Six Months Ended
August 3 July 29
1996 1995
OPERATING ACTIVITITES
Net income $95,927 $87,012
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 101,326 98,910
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 95,021 105,852
Increase in merchandise inventories and
other current assets (135,459) (97,410)
Increase in investments and other assets (4,880) (5,713)
Decrease in trade accounts payable and
accrued expenses and income taxes (44,690) (30,887)
NET CASH PROVIDED BY OPERATING ACTIVITIES 107,245 157,764
INVESTING ACTIVITIES
Purchase of property and equipment (173,733) (164,220)
NET CASH USED IN INVESTING ACTIVITIES (173,733) (164,220)
FINANCING ACTIVITIES
Net increase (decrease) in commercial paper 4,642 (38,318)
Proceeds from long-term borrowings 200,000 109,150
Principal payments on long-term debt and
capital lease obligations (134,430) (60,114)
Dividends paid (6,817) (6,793)
Common stock sold 13,419 0
NET CASH PROVIDED BY
FINANCING ACTIVITES 76,814 3,925
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,326 (2,531)
Cash and cash equivalents at beginning of period 58,442 51,095
CASH AND CASH EQUIVALENTS AT END OF PERIOD $68,768 $48,564
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 six month period ended August 3, 1996 are not
necessarily indicative of the results that may be expected for the
fiscal year ending 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 August 3, 1996 the LIFO
cost of merchandise inventories was approximately equal to the first-in,
first-out (FIFO) cost. At July 29, 1995, the LIFO cost of merchandise
inventories was approximately $1 million less than the first-in, first-
out (FIFO) cost. At each of February 3, 1996 and January 28, 1995, the
LIFO costs of merchandise inventories were approximately equal to FIFO
costs.
3. Net sales include leased department sales of $7.8 million and $8.6
million for the quarters ended August 3, 1996 and July 29, 1995,
respectively. Leased department sales for the six months ended August
3, 1996 and July 29, 1995 were $14.8 million and $15.9 million,
respectively. Leased department sales for the twelve months ended
August 3, 1996 and July 29, 1995 were $37.4 million and $43.2 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, 2026. 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 Six Months Ended Twelve Months Ended
August 3 July 29 August 3 July 29 August 3 July 29
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 65.0% 65.2% 65.5% 65.9% 65.6% 65.1%
Gross profit 35.0% 34.8% 34.5% 34.1% 34.4% 34.9%
Advertising, selling, administrative
and general expenses 26.9% 26.1% 26.0% 25.4% 24.6% 24.1%
Depreciation and amortization 3.8% 4.0% 3.6% 3.8% 3.2% 3.5%
Rentals 0.8% 0.9% 0.8% 0.9% 0.9% 1.1%
Interest and debt expense 2.3% 2.4% 2.1% 2.2% 2.0% 2.1%
Impairment charges 0.0% 0.0% 0.0% 0.0% 2.1% 0.0%
Total operating expenses 33.8% 33.4% 32.5% 32.3% 32.8% 30.8%
Other income 3.5% 3.5% 3.4% 3.6% 3.0% 3.2%
Income before income taxes 4.7% 4.9% 5.4% 5.4% 4.6% 7.3%
Income taxes 1.7% 1.9% 2.0% 2.0% 1.7% 2.8%
Net income 3.0% 3.0% 3.4% 3.4% 2.9% 4.5%
</TABLE>
<PAGE>
Sales for the second quarter of 1996 were $1,340.3 million as compared
to $1,265.1 million for the second quarter of 1995. This was an
increase of 6%. The sales increase for comparable stores was 2%. The
six month sales increase for 1996 over 1995 was 8%; for comparable
stores the increase was 4%. 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 sold rather than an
increase in the price of goods.
Cost of sales decreased from 65.2% of net sales for the second quarter
of 1995 to 65.0% for the second quarter of 1996. For the six months
ended August 3, 1996 the decrease was from 65.9% to 65.5% of net sales.
This decrease was due to a lower level of markdowns in the first half of
1996 than in the first half of 1995. For the twelve months ended August
3, 1996 and July 29, 1995, the cost of sales increased from 65.1% to
65.6% of net sales. This increase was due to a slightly higher level of
markdowns than in the prior year.
Advertising, selling, administrative and general expenses increased from
26.2% of net sales for the second quarter of 1995 to 26.9% for the
second quarter of 1996. For the six months ended August 3, 1996 and
July 29, 1995, these expenses increased from 25.4% to 26.0% of net
sales. For the twelve months ended August 3, 1996 and July 29, 1995,
these expenses increased from 24.1% to 24.6% of net sales. The Company
expensed the preopening costs associated with eight new stores opened in
the first six 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 first six
months of 1996 as compared to the first six months of 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, six and twelve month periods ended
August 3, 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 are owned
rather than leased.
Rental expense decreased slightly from .9% of net sales for the three
and six months ended July 29, 1995 to .8% for the three and six months
ended August 3, 1996. For the twelve months ended August 3, 1996 and
July 29, 1995, the decrease was 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 2.4% of net sales for the
second quarter of 1995 to 2.3% of net sales for the second quarter of
1996. For the six months ended August 3, 1996 and July 29, 1995, the
decrease was from 2.2% to 2.1% of net sales. For the twelve months
ended August 3, 1996 and July 29, 1995, the decrease was from 2.1% to
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 remained constant at 3.5% of
net sales for the second quarters of 1996 and 1995. For the six months
ended August 3, 1996 and July 29, 1995 it decreased from 3.6% of net
sales in 1995 to 3.4% in 1996. For the twelve months ended August 3,
1996 and July 29, 1995 this decrease was from 3.2% to 3.0%. 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 1996 and 38% for the second quarter of 1995.
<PAGE>
Financial Condition
The Company's working capital was $1,904,385,000 at August 3, 1996,
$1,788,545,000 at February 3, 1996, and $1,749,223,000 at July 29, 1995.
The current ratios for each of these periods were 3.4, 3.1 and 3.3,
respectively. The changes in working capital and current ratio were
caused by a higher level of inventory at August 3, 1996 compared to
February 3, 1996 and July 29, 1995. The long-term debt to
capitalization ratio was 33.4%, 32.2% and 32.8% at August 3, 1996,
February 3, 1996, and July 29, 1995, 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.
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 $173,733,000 in capital expenditures for the six
months ended August 3, 1996 as compared to $164,220,000 for the six
months ended July 29, 1995. In 1996, the Company plans to build sixteen
new stores, one of which will be a replacement store, and to expand and
remodel three existing stores. In 1995, the Company opened eleven new
stores, two of which were replacement stores, and expanded six stores.
Merchandise inventories increased by 11% from $1,458,574,000 at July 29,
1995 to $1,618,252,000 at August 3, 1996. The Company operated 14 more
stores at August 3, 1996 versus July 29, 1995. This was the primary
reason for the increase in inventory. On a comparable store basis, the
rate of increase in merchandise inventories was 5%.
Fluctuations in certain other balance sheet accounts between February 3,
1996 and August 3, 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:
Six Months Ended Fiscal Year Ended
August 3 July 29 February 3 January 28 January 29 January 30 February 1
1996 1995 1996 1995 1994 1993 1992
3.20 3.05 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 second quarter:
The Company filed a report dated June 4, 1996 relating to the
issuance of $100 million aggregate principal amount of 7.375% Notes
maturing on June 1, 2006.
The Company filed a report dated July 2, 1996 relating to the
issuance of $100 million aggregate principal amount of 7.75% Notes
maturing on July 15, 2026.
<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: September 13, 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 Six Months Ended Twelve Months Ended
August 3 July 29 August 3 July 29 August 3 July 29
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Average shares outstanding 113,560,187 113,045,656 113,389,882 113,045,656 113,218,732 113,025,962
Net effect of dilutive stock options based
on the treasury stock method using
average market price 800,716 60,735 687,574 30,368 425,826 15,184
Total 114,360,903 113,106,391 114,077,456 113,076,024 113,644,558 113,041,146
Net Income $39,526,000 $38,633,000 $95,927,000 $87,012,000 $176,098,000 $256,741,000
Less preferred dividends (5,500) (5,500) (11,000) (11,000) (22,000) (22,000)
Net income available to common shares $39,520,500 $38,627,500 $95,916,000 $87,001,000 $176,076,000 $256,719,000
Per share $0.35 $0.34 $0.84 $0.77 $1.55 $2.27
</TABLE>
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<TABLE>
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED
CHARGES
(Unaudited)
(Dollar amounts in thousands)
Six Months Ended Fiscal Year Ended
August 3 July 29 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 $152,262 $140,342 $269,653 $406,110 $399,534 $375,330 $322,157
Fixed charges (less capitalized
interest) 66,163 65,170 $139,666 145,921 152,568 142,857 128,891
EARNINGS $218,425 $205,512 $409,319 $552,031 $552,102 $518,187 $451,048
Interest $58,809 $57,547 $120,054 $124,282 $130,915 $121,940 $109,386
Capitalized interest 2,041 2,169 $3,567 2,545 1,882 1,646 3,574
Interest factor in rent expense 7,354 7,605 $19,612 21,639 21,653 20,917 19,505
FIXED CHARGES $68,204 $67,321 $143,233 $148,466 $154,450 $144,503 $132,465
Ratio of earnings to fixed charges 3.20 3.05 2.86 3.72 3.57 3.59 3.41
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> AUG-03-1996
<CASH> 68,768
<SECURITIES> 0
<RECEIVABLES> 1,008,554
<ALLOWANCES> 16,797
<INVENTORY> 1,618,252
<CURRENT-ASSETS> 2,708,989
<PP&E> 3,358,722
<DEPRECIATION> 1,250,028
<TOTAL-ASSETS> 4,906,586
<CURRENT-LIABILITIES> 804,604
<BONDS> 1,294,437
0
440
<COMMON> 1136
<OTHER-SE> 2,579,280
<TOTAL-LIABILITY-AND-EQUITY> 4,906,586
<SALES> 2,793,628
<TOTAL-REVENUES> 2,888,582
<CGS> 1,827,601
<TOTAL-COSTS> 1,827,601
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 31,281
<INTEREST-EXPENSE> 58,809
<INCOME-PRETAX> 152,262
<INCOME-TAX> 56,335
<INCOME-CONTINUING> 95,927
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95,927
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
</TABLE>
