SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 2, 1998
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
or organization) Number)
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 May 2, 1998 106,837,936
CLASS B COMMON STOCK as of May 2, 1998 4,016,929
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
CONSOLIDATED BALANCE SHEETS
DILLARD'S, INC.
(Unaudited)
(Thousands)
<TABLE>
May 2 January 31 May 3
1998 1998 1997
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $81,495 $41,833 $72,246
Trade accounts receivable 1,073,626 1,158,682 1,046,856
Merchandise inventories 2,063,898 1,784,765 1,874,310
Other current assets 13,176 12,777 9,897
TOTAL CURRENT ASSETS 3,232,195 2,998,057 3,003,309
OTHER ASSETS 100,414 92,298 106,553
PROPERTY AND EQUIPMENT, NET 2,462,262 2,463,801 2,196,432
CONSTRUCTION IN PROGRESS 41,204 37,691 107,221
$5,836,075 $5,591,847 $5,413,515
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses $810,635 $530,034 $793,654
Commercial paper 288,429 419,136 194,653
Federal and state income taxes 50,548 40,761 58,751
Current portion of long-term debt 107,268 107,268 106,564
Current portion of capital lease obligations 1,624 1,651 1,559
TOTAL CURRENT LIABILITIES 1,258,504 1,098,850 1,155,181
LONG-TERM DEBT 1,463,968 1,365,716 1,271,409
CAPITAL LEASE OBLIGATIONS 11,872 12,205 13,330
DEFERRED INCOME TAXES 322,028 307,138 261,094
STOCKHOLDERS' EQUITY
Preferred stock 440 440 440
Common stock 1,143 1,143 1,136
Additional paid-in capital 659,331 657,137 641,437
Retained earnings 2,373,513 2,314,709 2,127,980
Less treasury stock (254,724) (165,491) (58,492)
2,779,703 2,807,938 2,712,501
$5,836,075 $5,591,847 $5,413,515
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
DILLARD'S, INC.
(Unaudited)
(Thousands, except per share data)
<TABLE>
Three Months Ended Twelve Months Ended
May 2 May 3 May 2 May 3
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $1,682,216 $1,515,344 $6,798,624 $6,289,627
Service charges, interest and other 47,669 47,213 185,613 183,237
1,729,885 1,562,557 6,984,237 6,472,864
Cost and expenses:
Cost of sales 1,117,221 995,203 4,515,309 4,164,171
Advertising, selling, administrative
and general expenses 414,048 382,590 1,661,179 1,554,687
Depreciation and amortization 54,554 51,202 203,291 194,587
Rentals 10,291 10,630 54,347 55,238
Interest and debt expense 33,656 30,459 132,434 122,473
1,629,770 1,470,084 6,566,560 6,091,156
INCOME BEFORE INCOME TAXES 100,115 92,473 417,677 381,708
Income taxes 37,045 34,215 154,540 141,230
NET INCOME 63,070 58,258 263,137 240,478
RETAINED EARNINGS AT BEGINNING
OF PERIOD 2,314,709 2,074,214 2,127,980 1,904,508
2,377,779 2,132,472 2,391,117 2,144,986
Cash dividends declared (4,266) (4,492) (17,604) (17,006)
RETAINED EARNINGS AT END OF PERIOD $2,373,513 $2,127,980 $2,373,513 $2,127,980
BASIC EARNINGS PER COMMON SHARE $0.58 $0.52 $2.39 $2.12
DILUTED EARNINGS PER COMMON SHARE $0.58 $0.52 $2.37 $2.11
Cash dividends declared per common share $0.04 $0.04 $0.16 $0.15
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
DILLARD'S, INC.
(Unaudited)
(Thousands)
<TABLE>
Three Months Ended
May 2 May 3
1998 1997
<S> <C> <C>
OPERATING ACTIVITITES
Net income $63,070 $58,258
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 55,149 51,487
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 85,056 83,648
Increase in merchandise inventories and
other current assets (279,532) (318,169)
(Increase) Decrease in other assets (8,711) 319
Increase in trade accounts payable and accrued
expenses and income taxes 309,732 274,044
NET CASH PROVIDED BY OPERATING ACTIVITIES 224,764 149,587
INVESTING ACTIVITIES
Purchase of property and equipment (56,528) (162,922)
NET CASH USED IN INVESTING ACTIVITIES (56,528) (162,922)
FINANCING ACTIVITIES
Net (decrease) increase in commercial paper (130,707) 65,915
Proceeds from long-term borrowings 100,000 100,000
Principal payments on long-term debt and
capital lease obligations (2,108) (76,939)
Dividends paid (8,720) (9,046)
Common stock issued 2,194 49
Purchase of treasury stock (89,233) (58,492)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (128,574) 21,487
INCREASE IN CASH AND CASH EQUIVALENTS 39,662 8,152
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 41,833 64,094
CASH AND CASH EQUIVALENTS AT END OF PERIOD $81,495 $72,246
See notes to consolidated financial statements.
</TABLE>
<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 three month period ended May 2,
1998 are not necessarily indicative of the results that may be
expected for the fiscal year ending January 30, 1999 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
January 31, 1998.
2. On February 24, 1998, the Company issued $100 million aggregate
principal amount of its 6.3% notes due February 15, 2008. The notes
were sold in an underwritten public offering.
3. 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 quarter ended May 2, 1998, a total of 2.5 million
shares were purchased for a total of $89.2 million.
4. On May 16, 1998 the Board of Directors approved a definitive agreement
under which Dillard's, Inc. will acquire Mercantile Stores Company,
Inc. ("Mercantile") for $80.00 per share or approximately $2.9 billion
in cash. Mercantile operates 103 predominately fashion apparel stores
and 16 home fashion stores in 17 states.
Pursuant to the agreement, a cash tender offer ("the Offer")commenced
on May 21, 1998 by MSC Acquisitions, Inc, a subsidiary of the Company.
The Offer, for all outstanding common shares of Mercantile is
conditioned upon, among other things, (i) there being validly tendered
and not properly withdrawn prior to the expiration of the Offer a
number of Shares which, together with any Shares owned, directly or
indirectly, Dillard's or its subsidiaries, constitutes more than 50%
of the voting power (determined on a fully diluted basis) of all the
securities of Mercantile entitled to vote generally in the election
of directors or in a merger and (ii) the expiration or termination of
all applicable waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
The Offer and withdrawal rights are set to expire at 12:00 Midnight,
EDT, on Friday, June 19, 1998, unless the tender offer is extended.
The Company has financing commitments in place with commercial banks
sufficient to fund the purchase price.
<PAGE>
5. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share.
(thousands, except per share data) Three Months Ended Twelve Months Ended
May 2 May 3 May 2 May 3
1998 1997 1998 1997
Basic:
Net Income $ 63,070 $ 58,258 $263,137 $240,478
Average shares outstanding 108,323 112,795 110,185 113,376
Earnings per shares - basic $.58 $.52 $2.39 $2.12
Diluted:
Net Income $ 63,070 $ 58,258 $263,137 $240,478
Preferred stock dividends (6) (6) (22) (22)
Net earnings available for
per-share calculations 63,064 58,252 $263,115 $240,456
Average shares outstanding 108,323 112,795 110,185 113,376
Stock options 628 201 797 413
Total average equivalent shares 108,951 112,996 110,982 113,789
Earnings per share - diluted $.58 $ .52 $2.37 $ 2.11
Options to purchase 2,599,406 and 4,380,120 shares of Class A common
stock at prices ranging from $31.25 to $45.13 per share were
outstanding at May 2, 1998 and May 3, 1997, respectively, but
were not included in the computation of diluted earnings per share
because they would have been antidilutive.
<PAGE>
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 Twelve Months Ended
May 2 May 3 May 2 May 3
1998 1997 1998 1997
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 66.4 65.7 66.4 66.2
Gross profit 33.6 34.3 33.6 33.8
Advertising, selling, administrative
and general expenses 24.6 25.2 24.4 24.7
Depreciation and amortization 3.3 3.4 3.0 3.1
Rentals 0.6 0.7 0.8 0.9
Interest and debt expense 2.0 2.0 2.0 1.9
Total operating expenses 30.5 31.3 30.2 30.6
Service charges, interest and other 2.8 3.1 2.7 2.9
Income before income taxes 5.9 6.1 6.1 6.1
Income taxes 2.2 2.3 2.2 2.3
Net income 3.7 3.8 3.9 3.8
<PAGE>
Net sales for the first quarter of 1998 were $1,682.2 million as
compared to $1,515.3 million for the first quarter of 1997. This is
an increase of 11%. The net sales in comparable stores increased 7%
for the period versus last year. The twelve month sales increase for
1998 over 1997 was 8%; for comparable stores the increase was 4%. The
majority of the increase in sales was attributable to an increase in
the volume of goods sold rather than an increase in the price of
goods.
Cost of sales increased from 65.7% of net sales for the first quarter
of 1997 to 66.4% for the first quarter of 1998. For the twelve months
ended May 2, 1998 and May 3, 1997, the cost of sales increased from
66.2% to 66.4% of net sales. This increase was due to a higher level
of markdowns in the current periods than in the prior periods.
Advertising, selling, administrative and general expenses decreased
from 25.2% of net sales for the first quarter of 1997 to 24.6% of net
sales for the first quarter of 1998. For the twelve months ended May
2, 1998 and May 3, 1997 these expenses decreased from 24.7% to 24.4%
of net sales. Bad debt expense and payroll expense in the selling area
decreased as a percentage of sales.
Depreciation and amortization expense decreased slightly as a
percentage of sales for the three months ended May 2, 1998 compared to
the three months ended May 3, 1997 and decreased slightly as a
percentage of sales from 1997 in the twelve month period ended May 2,
1998.
Rental expense decreased slightly from .7% of net sales for the first
quarter of 1997 to .6% for the first quarter of 1998. For the twelve
months ended May 2, 1998 and May 3, 1997 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 remained constant at 2.0% of net sales for
the first quarter of 1998 and 1997. For the twelve months ended May
2, 1998 and May 3, 1997 it increased from 1.9% to 2.0% of net sales.
Service charges, interest and other income decreased from 3.1% of net
sales for the first quarter of 1997 to 2.8% of net sales for the first
quarter of 1998. For the twelve months ended May 2, 1998 and May 3,
1997 the decrease was from 2.9% to 2.7% of net sales. 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 first
quarter of 1998 and 1997.
Financial Condition
Net cash flows from operations were $225 million for the first quarter
of 1998. In addition to the cash flows from operations, the Company
borrowed $100 million by issuing notes in an underwritten public
offering. These notes mature on February 15, 2008. The Company also
reduced its commercial paper borrowings by $131 million during the
quarter.
The Company invested $56.5 million in capital expenditures for the
three months ended May 2, 1998 as compared to $162.9 million for the
three months ended May 3, 1997. In the first quarter of 1998 the
Company opened two new stores. During 1998, the Company plans to
build six additional stores (two of which will be replacement stores).
During 1997, the Company built twelve new stores, expanded and
remodeled four stores, acquired eleven stores and closed three.
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 first quarter of 1998, a total of 2.5 million
shares were purchased for a total of $89.2 million.
Merchandise inventories increased by 10% from $1.87 million at May 3,
1997 to $2.06 million at May 2, 1998. The Company operated 17 more
stores at May 2, 1998 versus May 3, 1997. This was the primary reason
for the increase in inventory. On a comparable store basis, the rate
of increase in merchandise inventories was 4 1/2%.
<PAGE>
The Company's Registration Statement registering an additional $300
million in debt securities went effective on June 10, 1998. The
Company has outstanding shelf registration for debt securities in the
amount of $500 million.
Fluctuations in certain other balance sheet accounts between January
31, 1998 and May 2, 1998 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.
On May 16, 1998 the Board of Directors approved a definitive agreement
under which Dillard's, Inc. will acquire Mercantile Stores Company,
Inc. ("Mercantile") for $80.00 per share or approximately $2.9 billion
in cash. Mercantile operates 103 predominately fashion apparel stores
and 16 home fashion stores in 17 states.
Pursuant to the agreement, a cash tender offer ("the Offer") commenced
on May 21, 1998 by MSC Acquisitions, Inc, a subsidiary of the Company.
The Offer, for all outstanding common shares of Mercantile is
conditioned upon, among other things, (i) there being validly tendered
and not properly withdrawn prior to the expiration of the Offer a
number of Shares which, together with any Shares owned, directly or
indirectly, Dillard's or its subsidiaries, constitutes more than 50%
of the voting power (determined on a fully diluted basis) of all the
securities of Mercantile entitled to vote generally in the election
of directors or in a merger and (ii) the expiration or termination of
all applicable waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
The Offer and withdrawal rights are set to expire at 12:00 Midnight,
EDT, on Friday, June 19, 1998, unless the tender offer is extended.
The Company has financing commitments in place with commercial banks
sufficient to fund the purchase price.
Forward-Looking Information
The Company cautions that any forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995)
contained in this quarterly report on Form 10-Q or made by management
of the Company involve risks and uncertainties and are subject to
change based on various important factors. The following factors,
among others, could affect the Company's financial performance and
could cause actual results for 1998 and beyond to differ materially
from those expressed or implied in any such forward-looking
statements: economic and weather conditions in the regions in which
the Company's stores are located and their effect on the buying
patterns of the Company's customers, changes in consumer spending
patterns and debt levels, trends in personal bankruptcies and the
impact of competitive market factors.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
During the three months ended May 30, 1998, the Company issued $100
million of Notes in an underwritten public offering. These Notes
mature in ten years and have an interest rate of 6.3%. The only other
activity during the quarter in the Company's debt obligations was the
scheduled payments of $2.1 million on the Company's mortgage notes.
<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:
Three Months Ended Fiscal Year Ended
May 2 May 3 January 31 February 1 February 3 January 28 January 29
1998 1997 1998 1997 1996 * 1995 1994
3.61 3.63 3.69 3.61 2.86 3.72 3.57
* 53 Weeks
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibit (12): Statement re: Computation of Ratio of Earnings to
Fixed Charges
(b) Reports on Form 8-K filed during the first quarter:
The Company filed a report on February 19, 1998 relating to
the issue of $100 million aggregate principal amount of 6.3% Notes
maturing on February 15, 2008.
<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'S, INC.
(Registrant)
DATE: June 16, 1998 /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
12 Statement re: Computation of Ratio of Earnings
to Fixed Charges
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
<TABLE>
Three Months Ended Fiscal Year Ended
May 2 May 3 January 31 February 1 February 3 January 28 January 29
1998 1997 1998 1997 1996 * 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated pretax income $100,115 $92,473 $410,035 $378,761 $269,653 $406,110 $399,534
Fixed charges (less capitalized
interest) 37,086 34,002 147,466 139,188 139,666 145,921 152,568
EARNINGS $137,201 $126,475 $557,501 $517,949 $409,319 $552,031 $552,102
Interest $33,656 $30,459 $129,237 $120,599 $120,054 $124,282 $130,915
Capitalized interest 898 884 3,644 4,420 3,567 2,545 1,882
Interest factor in rent expense 3,430 3,543 18,229 18,589 19,612 21,639 21,653
FIXED CHARGES $37,984 $34,886 $151,110 $143,608 $143,233 $148,466 $154,450
Ratio of earnings to fixed charges 3.61 3.63 3.69 3.61 2.86 3.72 3.57
* 53 Weeks
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> MAY-2-1998
<CASH> 81,495
<SECURITIES> 0
<RECEIVABLES> 1,073,626
<ALLOWANCES> 26,123
<INVENTORY> 2,063,898
<CURRENT-ASSETS> 3,232,195
<PP&E> 4,057,957
<DEPRECIATION> 1,554,491
<TOTAL-ASSETS> 5,836,075
<CURRENT-LIABILITIES> 1,258,504
<BONDS> 1,475,840
0
440
<COMMON> 1,143
<OTHER-SE> 2,778,120
<TOTAL-LIABILITY-AND-EQUITY> 5,836,075
<SALES> 1,682,216
<TOTAL-REVENUES> 1,729,885
<CGS> 1,117,221
<TOTAL-COSTS> 1,117,221
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 13,180
<INTEREST-EXPENSE> 33,656
<INCOME-PRETAX> 100,115
<INCOME-TAX> 37,045
<INCOME-CONTINUING> 63,070
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,070
<EPS-PRIMARY> .58<F1>
<EPS-DILUTED> .58<F2>
<FN>
<F1>EPS-BASIC PER SFAS NO. 128
<F2>ESP-DILUTED PER SFAS NO. 128
</FN>
</TABLE>
