<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 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 jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
1600 CANTRELL ROAD, LITTLE ROCK, ARKANSAS 72201
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (501) 376-5200
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
Class A Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 by checkmark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 31, 1997: $3,744,035,235
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock as of March 31, 1998:
Class A Common Stock, $.01 par value 103,630,436
Class B Common Stock, $.01 par value 4,016,929
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Stockholders Report for the fiscal
year ended January 31, 1998 (the "Report") are incorporated
by reference into Parts I and II.
Portions of the Proxy Statement for the Annual Meeting of
Stockholders to be held May 16, 1998 (the "Proxy Statement")
are incorporated by reference into Part III.
<PAGE>
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 report 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 forces.
PART I
ITEM 1. BUSINESS.
General
Dillard's, Inc. ("Company" or "Registrant") is an
outgrowth of a department store originally founded in
1938 by William Dillard. The Company was incorporated
in Delaware in 1964. The Company operates retail
department stores located primarily in the southwest,
southeast and midwest.
The department store business is highly competitive.
The Company has several competitors on a national and
regional level as well as numerous competitors on a
local level. Many factors enter into competition for
the consumer's patronage, including price, quality,
style, service, product mix, convenience and credit
availability. The Company's earnings depend to a
significant extent on the results of operations for the
last quarter of its fiscal year. Due to holiday buying
patterns, sales for that period average approximately
one-third of annual sales.
For additional information with respect to the
Registrant's business, reference is made to information
contained on page 12, under the heading "Dillard's
Locations," page 14 under the headings "Net Sales,"
"Net Income," "Total Assets" and "Number of Employees -
Average," and page 32 of the Report, which information
is incorporated herein by reference.
Executive Officers of the Registrant
The following table lists the names and ages of all
Executive Officers of the Registrant, the nature of any
family relationship between them, and all positions and
offices with the Registrant presently held by each
person named. All of the Executive Officers listed
below have been in managerial positions with the
Registrant for more than five years, except for Paul J.
Schroeder, Jr.. Mr. Schroeder has been employed by the
Registrant as Vice President since January, 1998.
Prior to that employment, he was a Partner in St. Louis
based, international law firm Bryan Cave, LLP
specializing in labor and employment law.
<PAGE>
Name Age Position and Office Family Relationships
William Dillard 83 Chairman of the Board; Father of William
Chief Executive Officer Dillard II, Drue
Corbusier, Alex
Dillard and Mike
Dillard
William Dillard II 53 Director; President Son of
& Chief Operating Officer William Dillard
Alex Dillard 48 Director; Executive Son of
Vice President William Dillard
Mike Dillard 46 Director; Executive Son of
Vice President William Dillard
H. Gene Baker 59 Vice President None
Joseph P. Brennan 53 Vice President None
G. Kent Burnett 53 Vice President None
Drue Corbusier 51 Director; Vice President Daughter of
William Dillard
David M. Doub 51 Vice President None
John A. Franzke 66 Vice President None
James I. Freeman 48 Director; Senior Vice None
President; Chief Financial
Officer
Randal L. Hankins 47 Vice President None
T. R. Gastman 68 Vice President None
Paul J. Schroeder, Jr. 50 Vice President None
<PAGE>
ITEM 2. PROPERTIES.
All of the Registrant's stores are owned or leased from a
wholly-owned subsidiary or from third parties. The
Registrant's third-party store leases typically provide for
rental payments based upon a percentage of net sales with a
guaranteed minimum annual rent, while the lease terms between
the Registrant and its wholly-owned subsidiary vary. In
general, the Company pays the cost of insurance, maintenance
and any increase in real estate taxes related to these leases.
At fiscal year end there were 270 stores in operation with
gross square footage of 43,300,000. The Company owned or
leased from a wholly-owned subsidiary a total of 204 stores
with 33,200,000 square feet. The Company leased 66 stores
from third parties which totalled 10,100,000 square feet. For
additional information with respect to the Registrant's
properties and leases, reference is made to information
contained on page 12 under the heading "Dillard's Locations,"
and Notes 3, 9 and 10, "Notes to Consolidated Financial
Statements," on pages 25, 26, 29 and 30 of the Report, which
information is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS.
The Company has no material legal proceedings pending against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
With respect to the market for the Company's common stock,
market prices, and dividends, reference is made to information
contained page 33 of the Report, which information is
incorporated herein by reference. As of March 31, 1998, there
were 5,527 record holders of the Company's Class A Common
Stock and 10 record holders of the Company's Class B Common
Stock.
ITEM 6. SELECTED FINANCIAL DATA.
Reference is made to information under the heading "Table of
Selected Financial Data" on pages 14 and 15 of the Report,
which information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Reference is made to information under the heading
"Management's Discussion and Analysis of Financial Condition
and Results of Operation" on pages 16 through 18 of the
Report, which information is incorporated herein by reference.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Reference is made to information under the heading
"Quantitative and Qualitative Disclosures About Market Risk" on
page 18 of the Report, which information is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to the consolidated financial statements and
notes thereto included on pages 19 through 31 of the Report,
which are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
A. Directors of the Registrant.
Information regarding directors of the Registrant is
incorporated herein by reference to the information on
pages 5 through 7 under the heading "Nominees for
Election as Directors" and page 12 under the heading
"Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement.
B. Executive Officers of the Registrant.
Information regarding executive officers of the
Registrant is incorporated herein by reference to Item 1
of this report under the heading "Executive Officers of
the Registrant." Reference additionally is made to the
information under the heading "Section 16(a) Beneficial
Ownership Reporting Compliance" on page 12 in the Proxy
Statement, which information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation and compensation
of directors is incorporated herein by reference to the
information beginning on page 8 under the heading
"Compensation of Directors and Executive Officers" and
concluding on page 10 under the heading "Compensation
Committee Interlocks and Insider Participation" in the Proxy
Statement.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information regarding security ownership of certain beneficial
owners and management is incorporated herein by reference to
the information on page 4 under the heading "Principal Holders
of Voting Securities" and page 5 under the heading "Nominees
for Election as Directors" and continuing through footnote 15
on page 7 in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related
transactions is incorporated herein by reference to the
information on page 12 under the heading "Certain
Relationships and Transactions" in the Proxy Statement and to
the information regarding Mr. Davis on page 10 under the
heading "Compensation Committee Interlocks and Insider
Participation" in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a)(1) Financial Statements
The following consolidated financial statements of the Registrant
and its consolidated subsidiaries included in the Report are
incorporated herein by reference to Item 8 of this report:
Consolidated Balance Sheets - January 31, 1998 and February 1, 1997
Consolidated Statements of Income - Fiscal years ended January 31, 1998,
February 1, 1997 and February 3, 1996
Consolidated Statements of Stockholders' Equity - Fiscal years ended
January 31, 1998, February 1, 1997 and February 3, 1996
Consolidated Statements of Cash Flows - Fiscal years ended
January 31, 1998, February 1,1997 and February 3, 1996
Notes to Consolidated Financial Statements - Fiscal years ended
January 31, 1998, February 1, 1997 and February 3, 1996
(a)(2) Financial Statement Schedules
The following consolidated financial statement schedule of the
Registrant and its consolidated subsidiaries is filed pursuant to
Item 14(d) (this schedule appears immediately following the
signature page):
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable, and therefore have been omitted.
<PAGE>
(a)(3) Exhibits and Management Compensatory Plans
Exhibits
The following exhibits are filed pursuant to Item 14(c):
Number Description
* 3(a) Restated Certificate of Incorporation (Exhibit 3 to Form
10-Q for the quarter ended August 1, 1992 in 1-6140)
* 3(b) By-Laws as currently in effect. (Exhibit 3(b) to Form 10-K
for the fiscal year ended January 30, 1993 in 1-6140)
* 4(a) Indenture between the Registrant and Chemical Bank,
Trustee, dated as of October 1, 1985 (Exhibit (4) in 2-85556)
* 4(b) Indenture between the Registrant and Chemical Bank,
Trustee, dated as of October 1, 1986 (Exhibit (4) in 33-8859)
* 4(c) Indenture between Registrant and Chemical Bank, Trustee,
dated as of April 15, 1987 (Exhibit 4.3 in 33-13534)
* 4(d) Indenture between Registrant and Chemical Bank, Trustee,
dated as of May 15, 1988, as supplemented (Exhibit 4 in
33-21671, Exhibit 4.2 in 33-25114 and Exhibit 4(c) to
Current Report on Form 8-K dated September 26, 1990 in 1-6140)
* 4(e) Indenture between Dillard Investment Co., Inc. and
Chemical Bank, Trustee, dated as of April 15, 1987, as
supplemented (Exhibit 4.1 in 33-13535 and Exhibit 4.2 in
33-25113)
*10(a) Retirement Contract of William Dillard dated March 8,
1997 (Exhibit 10(a) to Form 10-K for the fiscal year
ended February 1, 1997 in 1-6140)
*10(b) 1990 Incentive and Nonqualified Stock Option Plan
(Exhibit 10(b) to Form 10-K for the fiscal year ended
January 30, 1993 in 1-6140)
*10(c) Corporate Officers Non-Qualified Pension Plan (Exhibit
10(c) to Form 10-K for the fiscal year ended January 29,
1994 in 1-6140)
*10(d) Senior Management Cash Bonus Plan (Exhibit 10(d) to Form
10-K for the fiscal year ended January 28, 1995 in 1-6140)
12 Statement Re: Computation of Ratio of Earnings to Fixed
Charges
13 Incorporated portions of the Annual Stockholders Report
for the fiscal year ended January 31, 1998
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
____________
* Incorporated herein by reference as indicated.
<PAGE>
Management Compensatory Plans
Listed below are the management contracts and compensatory plans
which are required to be filed as exhibits pursuant to Item 14(c):
Retirement Contract of William Dillard dated March 8, 1997
1990 Incentive and Nonqualified Stock Option Plan
Corporate Officers Non-Qualified Pension Plan
Senior Management Cash Bonus Plan
(b) Reports on Form 8-K filed during the fourth quarter:
The Company filed a report on January 9, 1998 relating to the
issuance of $100 million aggregate principal amount of 6 5/8%
Notes maturing on January 15, 2018.
(c) Exhibits
See the response to Item 14(a)(3).
(d) Financial statement schedules
See the response to Item 14(a)(2).
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
April 24, 1998 /s/ James I. Freeman
Date James I. Freeman, Senior Vice President and
Chief Financial Officer
(Principal Financial & Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacity and on the date
indicated.
/s/ William Dillard /s/ Drue Corbusier
William Dillard Drue Corbusier
Chairman and Chief Executive Vice President and Director
Officer (Principal Executive
Officer)
/s/ Calvin N. Clyde, Jr. /s/ Robert C. Connor
Calvin N. Clyde, Jr. Robert C. Connor
Director Director
/s/ Will D. Davis /s/ Alex Dillard
Will D. Davis Alex Dillard
Director Executive Vice President
and Director
/s/ Mike Dillard /s/ William Dillard II
Mike Dillard William Dillard II
Executive Vice President and President and Chief Operating
Director Officer and Director
/s/ James I. Freeman /s/ William H. Sutton
James I. Freeman William H. Sutton
Senior Vice President and Chief Director
Financial Officer and Director
/s/ John Paul Hammerschmidt /s/ William B. Harrison, Jr.
John Paul Hammerschmidt William B. Harrison, Jr.
Director Director
/s/ Jackson T. Stephens /s/ John H. Johnson
Jackson T. Stephens John H. Johnson
Director Director
/s/ E. Ray Kemp
E. Ray Kemp
Director
April 24, 1998
Date
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of Dillard's, Inc.
Little Rock, Arkansas
We have audited the consolidated financial statements of Dillard's, Inc. and
subsidiaries as of January 31, 1998 and February 1, 1997, and for each of the
three years in the period ended January 31, 1998, and have issued our report
thereon dated February 23, 1998; such consolidated financial statements and
report (which report includes an explanatory paragraph relating to a change
in accounting for the impairment of long-lived assets and for long-lived
assets to be disposed of) are included in your 1997 Annual Report to
Stockholders and are incorporated herein by reference. Our audits also
included the consolidated financial statement schedule of Dillard's, Inc. and
subsidiaries, listed in Item 14. This consolidated financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
New York, New York
February 23, 1998
<PAGE>
<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
DILLARD'S, INC. AND SUBSIDIARIES
(DOLLAR AMOUNTS IN THOUSANDS)
COL. A COL. B COL. C COL.D COL. E COL. F
ADDITIONS
BALANCE CHARGED TO CHARGED TO BALANCE
AT BEGINNING COST AND OTHER ACCOUNTS DEDUCTIONS - AT END
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
<C> <C> <C> <C> <C> <C> <C> <C>
Allowance for losses on accounts
receivable:
Year ended
January 31, 1998: $24,169 55,816 52,176 (2) $27,809
Year ended
February 1, 1997: $19,528 66,629 23 (1) 62,011 (2) $24,169
Year ended
February 3, 1996: $15,307 52,522 708 (1) 49,009 (2) $19,528
(1) Represents the allowance for losses on accounts acquired.
(2) Accounts written off and charged to allowance for losses on accounts
receivable (net of recoveries).
</TABLE>
<PAGE>
EXHIBIT INDEX
Number Description
* 3(a) Restated Certificate of Incorporation
(Exhibit 3 to Form 10-Q for the quarter
ended August 1, 1992 in 1-6140)
* 3(b) By-Laws as currently in effect (Exhibit 3(b) to Form
10-K for the fiscal year ended January 30, 1993, in 1-6140)
* 4(a) Indenture between the Registrant and
Chemical Bank, Trustee, dated as of
October 1, 1985 (Exhibit (4) in 2-85556)
* 4(b) Indenture between the Registrant and
Chemical Bank, Trustee, dated as of
October 1, 1986 (Exhibit (4) in 33-8859)
* 4(c) Indenture between Registrant and
Chemical Bank, Trustee, dated as of
April 15, 1987 (Exhibit 4.3 in 33-13534)
* 4(d) Indenture between Registrant and
Chemical Bank, Trustee, dated as of
May 15, 1988, as supplemented (Exhibit
4 in 33-21671, Exhibit 4.2 in 33-25114
and Exhibit 4(c) to Current Report on
Form 8-K dated September 26, 1990 in 1-6140)
* 4(e) Indenture between Dillard Investment
Co., Inc. and Chemical Bank, Trustee,
dated as of April 15, 1987, as
supplemented (Exhibit 4.1 in 33-13535
and Exhibit 4.2 in 33-25113)
*10(a) Retirement Contract of William Dillard
dated March 8,1997 (Exhibit 10(a) to
Form 10-K for the fiscal year ended
February 1, 1997 in 1-6140)
*10(b) 1990 Incentive and Nonqualified Stock
Option Plan (Exhibit 10(b) to Form 10-K
for the fiscal year ended January 30, 1993 in 1-6140)
*10(c) Corporate Officers Non-Qualified Pension Plan
(Exhibit 10(c) to Form 10-K for the fiscal year
ended January 29, 1994 in 1-6140)
*10(d) Senior Management Cash Bonus Plan (Exhibit 10(d)
to Form 10-K for the fiscal year ended January 28, 1995
in 1-6140)
12 Statement Re: Computation of Ratio of
Earnings to Fixed Charges
13 Incorporated portions of the Annual
Stockholders Report for the fiscal year
ended January 31, 1998
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
__________________
* Incorporated herein by reference as indicated.
<PAGE>
<TABLE>
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
Fiscal Year Ended
JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28, JANUARY 29
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Consolidated pretax income $410,035 $378,761 $269,653 $406,110 $399,534
Fixed charges (less capitalized interest) 147,466 139,188 139,666 145,921 152,568
EARNINGS $557,501 $517,949 $409,319 $552,031 $552,102
Interest $129,237 $120,599 $120,054 $124,282 $130,915
Capitalized interest 3,644 4,420 3,567 2,545 1,882
Interest factor in rent expense 18,229 18,589 19,612 21,639 21,653
FIXED CHARGES $151,110 $143,608 $143,233 $148,466 $154,450
Ratio of earnings to fixed charges 3.69 3.61 2.86 3.72 3.57
</TABLE>
<PAGE>
Dillard's
Table of Contents
Page 1 The Corporation
Page 2 Letter to the Stockholders
Page 4 Focused on Growth
Page 6 Growth Through Development and Acquisition
Page 8 New Stores, Stores Acquired and Stores Expanded
Page 10 Corporate Organization
Page 11 Board of Directors
Page 12 Dillard's Store Locations
Page 13 Financial Review
The Corporation
Sixty years ago, William Dillard established the first Dillard's store in
Nashville, Arkansas. From this humble beginning, the Company has emerged as one
of the most successful retail chains in the United States, with annual sales of
more than $6.6 billion.
Today, Dillard's, Inc., comprises 263 full-line, traditional stores and
seven clearance centers in 27 states, offering a distinctive mix of name-brand
and private-label merchandise. With everyday value 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.
<PAGE 1>
Letter to the Stockholders
For nearly 60 years, Dillard's has grown steadily by delivering superior
service to our customers on quality merchandise offered at an exceptional
value. For 1997, I am pleased to report sales and net income reached record
levels. Our sales grew to $6.6 billion, which is an overall growth rate of 6%.
The sales for comparable stores increased by 2% in 1997, when compared with
last year. Diluted earnings per share rose 10.5% to $2.31 in 1997, from $2.09
for 1996.
During 1997, we constructed 12 new stores, growing opportunities in new
markets and strengthening our presence in existing ones. We placed our
footprint on the map in two new states, with our new stores constructed in
Cheyenne, Wyoming, and Stockton, California. Our welcome in these new states by
these communities was extremely enthusiastic and we were honored by the
excitement of our new customers. In addition, stores were opened in Macon,
Georgia; Memphis, Tennessee; Colorado Springs, Colorado; Longmont, Colorado;
Waterloo, Iowa; Olathe, Kansas; Sandy, Utah; Meridian, Mississippi; Baton
Rouge, Louisiana and Richmond, Indiana. We also expanded four stores and closed
three stores during the year, two of which were clearance centers.
<PAGE 2>
Nineteen ninety-seven presented us with acquisition opportunities and, as
planned, we were well-equipped to respond. We acquired seven stores in Virginia
from Proffitt's, Inc., positioning Dillard's in Virginia for the first time.
Additionally, ten Florida department store buildings from Dayton Hudson
Corporation and three Macy's stores in Houston were purchased. Of these
acquired stores, five were added to existing mall locations and four were not
opened prior to the end of 1997. In total, we added 3.3 million square feet to
our store base during the year.
Continuing our pattern of growth, we plan to open eight new stores in 1998
(two of which will be replacement stores), and to expand and remodel an
additional nine stores in key mall locations. This will add 1.7 million square
feet to our store base of 43.3 million square feet at January 31, 1998.
In February, 1997, our Board of Directors approved a $300 million Class A
share repurchase program. During 1997, we repurchased a total of $165 million
in Class A common shares at an average price of $33 per share. This program
highlights our confidence in the financial strength of your Company. We remain
poised for growth.
Our purpose remains as clear as it was 60 years ago, superior service and
exceptional value. It's what we do best. Any success your Company has achieved
is a tribute to our 45,000 associates who, following this simple philosophy and
with your support, have made it happen.
William Dillard
Chairman of the Board and Chief Executive Officer
March 27, 1998
<PAGE 3>
Focused On Growth
Steady, controlled growth has long been an essential building block of the
Dillard's success story. The Company began with a single store 60 years ago.
Soon afterward, William Dillard set the course for prudent, determined growth
by initiating a pattern of new store construction, acquisition and expansion
that continues to this day. During 1997, several significant achievements
occurred within Dillard's to bolster this strategy of growth, helping to
position the Company for even greater success in the future.
New market development. Nineteen ninety-seven will be remembered as a
period of remarkable market development for Dillard's.
In October, the Company secured a foothold in the far west with the opening
of a 200,000-square-foot new store in Stockton, California. In addition,
Dillard's established a strong new presence in Virginia by acquiring seven
Proffitt's stores. By the start of 1998, six of these stores had opened, adding
approximately 500,000 square feet. Wyoming was another new state the Company
entered in 1997, with an 85,000-square-foot store in Cheyenne.
In addition to new market penetration, Dillard's significantly
strengthened its position in several existing markets. For example, in Houston,
Texas, the Company made a major move toward establishing market dominance
through the acquisition of three Macy's stores. Dillard's now operates a total
of 11 stores in this lucrative area. In Florida, by year end, the Company was
able to open seven of ten Mervyn's stores acquired from Dayton Hudson
Corporation. This added approximately 700,000 square feet, further enhancing
Dillard's already strong position in the region.
Dillard's southeast region, which experienced notable growth through
expansion into new markets, demonstrated particularly strong sales gains in
1997 - up 12% over the previous year. Sales in the more mature southwest
region, which has consistently performed as the Company's stronghold of
profitability, grew by 6%, while sales in the midwest region grew by 2%.
"Double-header" dominance. Dillard's continues to pioneer a unique mall
marketing concept the Company calls the "Dillard's double-header." By
<PAGE 4>
establishing dual anchor stores inside key shopping centers, the Company is
able to offer superior inventory selections while creating retail dominance
within an individual mall. Essentially, one Dillard's store is separated into
two locations, each carrying non-competing merchandise under the Dillard's
name. Typically, the Company places cosmetics, women's clothing, accessories
and home furnishings in one location, and men's, juniors', young men's, and
children's clothing at the other. Approximately 40 of these co-anchor
configurations exist throughout the Dillard's chain. Examples of this concept
in practice can be found in Pembroke Lakes Mall in Pembroke Pines, Florida, and
Oak Park Mall in Overland Park, Kansas.
Stock repurchase program. In 1997, to further enhance shareholder value,
the Company implemented a Class A common share repurchase program of up to $300
million. This decision was authorized by the Board of Directors in the belief
that Dillard's stock was underpriced in view of the Company's performance and
potential. Taking advantage of a strong balance sheet, the Company had bought
back $165 million at an average price of $33 per share, or approximately five
million shares, in this repurchasing program by January 31, 1998.
Restructuring of operating divisions. Continuing realignment efforts begun
the previous year, the Company further restructured operations to enable
regional and corporate management to concentrate on specific geographic and
climatic areas. A series of executive management changes was effected late in
fiscal 1997, to strengthen overall store performance and streamline
merchandising operations. Today, three of Dillard's most dynamic and
accomplished operations officers are working to enhance store operations
through the formation of three corporate operating regions. All district
managers report to one of these three corporate executives, who are charged
with the continuing goal of effecting superior store performance.
The realignment of Dillard's buying and merchandising functions, which
began in March 1996, has continued to complement the Company's supply-chain
efficiencies. Dillard's five regional buying offices continue to serve
customers by providing them with an attractive selection of merchandise at an
honest value. To further intensify the Company's merchandising effort in the
midwest, one of Dillard's most successful managers has now assumed
responsibility of the St. Louis Division.
Streamlining distribution. In 1997, the Company began a series of moves to
streamline distribution throughout the Dillard's network. Two distribution
centers - in Charlotte, North Carolina, and Cleveland, Ohio - are currently
being phased out. A new 440,000- square-foot facility located in Salisbury,
North Carolina, will be completed and on line in April, 1998. This new center
will feature advanced distribution technology and will enable the Company to
provide a faster and more accurate flow of merchandise to customers. In 1998,
the Company plans to equip other distribution centers with this improved
delivery system. By the end of the year, Dillard's will utilize a total of six
distribution centers strategically situated throughout the U. S. In addition to
Salisbury, other locations include: Little Rock, Arkansas; Fort Worth, Texas;
Phoenix, Arizona; Olathe, Kansas and Valdosta, Georgia.
<PAGE 5>
Growth Through Development and Acquisition
Vigorously pursuing a strategy of growth through building, buying,
integrating and upgrading superior store properties, Dillard's realized solid
market gains during 1997. As of January, 1998, the Company operated 270 stores
in 27 states, an increase from 250 stores in 24 states in 1996. In total,
Dillard's added 3.3 million square feet to its store base during the year. In
1998, the Company plans an increase of 1.7 million square feet.
New Stores. Dillard's constructed 12 new stores in 1997. The locations
vary in size from a 209,000-square-foot unit in Colorado Springs, Colorado, to
a 30,000-square-foot outlet unit in Olathe, Kansas. All of these newly
constructed stores, with the exception of the outlet unit, are owned by the
Company. For the year, Dillard's closed three stores, two of which were
<PAGE 6>
clearance centers. In 1998, Dillard's plans to build eight new stores, two of
which will be replacement stores.
Expansions. Dillard's expanded four stores in 1997, adding approximately
200,000 square feet of store space. In addition, the Company remodeled a number
of stores throughout the year. For many years, Dillard's has followed a
philosophy of expanding or updating stores on an ongoing basis. The Company
expands existing locations to satisfy growing consumer demands and remodels
other stores to keep them modern, efficient and competitive. During 1998, a
number of stores in various markets are scheduled for improvements in keeping
with this plan.
Acquisitions. During 1997, Dillard's acquired a total of 20 stores: seven
in Virginia from Proffitt's, Inc., ten in Florida from Dayton Hudson
Corporation and three in Houston, Texas, from Macy's. Eleven of the stores
provided the Company with a foothold in new mall locations and, in some cases,
new markets. Another five of the acquisitions represented opportunities to
expand Dillard's presence in existing mall locations. Of these, four locations
embody the Company's "double-header" strategy. Four of the acquired stores were
not yet opened prior to the end of the fiscal year.
<PAGE 7>
New Stores
New Stores Constructed - 1997
Macon, Georgia - Macon Mall - February - 175,000
Memphis, Tennessee - Wolfchase Galleria - February - 200,000
Colorado Springs, Colorado - Chapel Hills Mall - March - 209,000
Cheyenne, Wyoming - Frontier Mall - March - 85,000
Longmont, Colorado - Twin Peaks Mall - March - 94,000
Waterloo, Iowa - Crossroads Mall - August - 150,000
Olathe, Kansas - Great Mall of the Great Plains - August - 30,000*
Sandy, Utah - South Towne Square - September - 200,000
Meridian, Mississippi - Bonita Lakes Mall - October - 126,000
Stockton, California - Weberstown Mall - October - 200,000
Baton Rouge, Louisiana - Mall of Louisiana - October - 200,000
Richmond, Indiana - Richmond Square - November - 86,000
*Outlet center
Store sizes are presented in square feet.
Stores Acquired - 1997^
Richmond, Virginia - Chesterfield Towne Center - July - 65,000
Richmond, Virginia - Virginia Center Commons - July - 80,000
Chesapeake, Virginia - Chesapeake Square - August - 80,000
Hampton, Virginia - Coliseum Mall - August - 110,000
Chesapeake, Virginia - Greenbrier Mall - August - 79,000
Virginia Beach, Virginia - Pembroke Mall - August - 65,000
Miami, Florida - Cutler Ridge Mall - October - 93,000
Coral Springs, Florida - Coral Square Mall - October - 98,000
Miami, Florida - Miami International Mall - October - 100,000
Plantation, Florida - Broward Mall - November - 143,000
Houston, Texas - Deerbrook Mall - November - 210,000
^The Company acquired 20 stores in 1997, four of which were not
opened by year's end.
<PAGE 8>
Stores Acquired - 1997 (in existing locations)(a)
Houston, Texas - Willowbrook Mall - July - 210,000
Houston, Texas - Baybrook Mall - July - 223,000
Melbourne, Florida - Melbourne Square - August - 100,000
Lakeland, Florida - Lakeland Square - August - 76,000
Pembroke Pines, Florida - Pembroke Lakes Mall - September - 77,000
(a)These stores were acquired within existing mall locations and represent no
increase in total units. The Willowbrook Mall location replaces 120,000
square feet.
Stores Expanded and Remodeled- 1997
Dallas, Texas - Redbird Mall - August - 60,000
Waco, Texas - Richland Mall - August - 63,000
Fort Smith, Arkansas - Central Mall - September - 35,000
Port Arthur, Texas - Central Mall - September - 36,000
Store sizes and expansions are presented in square feet.
New Stores to be Opened - 1998
Oviedo, Florida - Marketplace at Oviedo - March - 214,000
Newport News, Virginia - Patrick Henry Mall - March - 65,000
Coralville, Iowa - Coral Ridge Mall - July - 126,000
Provo, Utah - Provo Towne Centre - August - 200,000
Boise, Idaho - Boise Towne Square - August - 180,000
Lake Charles, Louisiana - Prien Lake Mall - October - 158,000
Gastonia, North Carolina - Eastridge Mall - November - 204,000+
Scottsdale, Arizona - Fashion Square - August - 320,000++
+Replaces 92,000 square feet ++Replaces 234,000 square feet
<PAGE 9>
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
Vice Presidents
W.R. Appleby, II
Gregg Athy
H. Gene Baker
Jan E. Bolton
Michael Bowen
Joseph P. Brennan
Kent Burnett
Larry Cailteux
Wynelle Chapman
James W. Cherry, Jr.
Neil Christensen
Drue Corbusier
David M. Doub
John A. Franzke
T.R. Gastman
Randal L. Hankins
Marva Harrell
G. William Haviland
John Hawkins
Mark Killingsworth
Gaston Lemoine
Denise Mahaffy
Robert G. McGushin
Michael S. McNiff
Jeff Menn
Anthony Menzie
Cindy Myers-Ray
Steven K. Nelson
Steven T. Nicoll
Tom C. Patterson
M.E. Ritchie, Jr.
Richard Roberds
James Schatz
Paul J. Schroeder, Jr.
Linda Sholtis-Tucker
Sandra Steinberg
Burt Squires
Joseph W. Story
Ralph Stuart
Julie A. Taylor
David Terry
Richard Vasey
Keith White
Richard B. Willey
Linda Zwern
Merchandising Divisions
Fort Worth
Drue Corbusier
Chairman
Gregg Athy
Vice President,
Merchandising
Wynelle Chapman
Vice President,
Merchandising
Gaston Lemoine
District Manager
Anthony Menzie
District Manager
Richard Roberds
District Manager
James Schatz
District Manager
William B. Warner
Director of
Sales Promotion
Little Rock
Mike Dillard
Chairman
David Terry
Vice President,
Merchandising
Keith White
Vice President,
Merchandising
Tom C. Patterson
District Manager
Burt Squires
District Manager
Richard Vasey
District Manager
Richard B. Willey
District Manager
Ken Eaton
Director of
Sales Promotion
Phoenix
Kent Burnett
Chairman
Julie A. Taylor
Vice President,
Merchandising
Robert G. McGushin
District Manager
Jeff Menn
District Manager
Robert E. Baker
Director of
Sales Promotion
St. Louis
Joseph P. Brennan
President
Mark Killingsworth
Vice President,
Merchandising
Larry Cailteux
District Manager
Neil Christensen
District Manager
Marva Harrell
District Manager
Cindy Myers-Ray
District Manager
Howard Hall
Director of
Sales Promotion
Tampa
David M. Doub
President
Linda Zwern
Vice President,
Merchandising
W.R. Appleby, II
District Manager
Steven T. Nicoll
District Manager
Linda Sholtis-Tucker
District Manager
Sandra Steinberg
District Manager
Louise Platt
Director of
Sales Promotion
<PAGE 10>
Board Of Directors
William Dillard
Chairman of the Board
Chief Executive Officer
Dillard's, Inc.
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's, Inc.
Will D. Davis
Partner
Heath, Davis & McCalla, Attorneys
Austin, Texas
Alex Dillard
Executive Vice President
Dillard's, Inc.
Mike Dillard
Executive Vice President
Dillard's, Inc.
William Dillard, II
President
Chief Operating Officer
Dillard's, Inc.
James I. Freeman
Senior Vice President
Chief Financial Officer
Dillard's, Inc.
John Paul Hammerschmidt
Retired Member of Congress
William B. Harrison, Jr.
Vice Chairman
Chase Manhattan Corporation
New York, New York
John H. Johnson
President and Publisher
Johnson Publishing Company, Inc.
Chicago, Illinois
E. Ray Kemp
Retired Vice Chairman and
Chief Administrative Officer
Dillard's, Inc.
Jackson T. Stephens
Chairman
Stephens Group, Inc.
Little Rock, Arkansas
William H. Sutton
Managing Partner
Friday, Eldredge & Clark, Attorneys
Little Rock, Arkansas
<PAGE 11>
Dillard's Locations
State
1997 1996 1995 1994
Texas 64 64 63 62
Florida 37 34 30 27
Louisiana 16 15 16 16
Missouri 16 16 16 16
Ohio 15 15 13 13
North Carolina 14 14 14 13
Oklahoma 14 14 14 14
Arizona 13 13 13 13
Tennessee 13 12 12 12
Kansas 9 9 9 9
Arkansas 7 7 7 7
South Carolina 7 7 6 6
Virginia 6
New Mexico 5 5 4 4
Colorado 4 2 1
Kentucky 4 4 3 1
Mississippi 4 3 3 3
Nebraska 4 4 4 4
Nevada 4 4 3 3
Utah 3 2 2 2
Georgia 2 1
Illinois 2 2 2 2
Indiana 2 1 1
Iowa 2 1 1 1
Alabama 1 1 1 1
California 1
Wyoming 1
<PAGE 12>
Financial Review
Table of Selected Financial Data Page 14
Management's Discussion and Analysis Page 16
Independent Auditors' Report Page 19
Consolidated Balance Sheets Page 20
Consolidated Statements of Income Page 21
Consolidated Statements of Stockholders' Equity Page 22
Consolidated Statements of Cash Flows Page 23
Notes to Consolidated Financial Statements Page 24
Annual Meeting and General Information Page 32
Stock Prices and Dividends by Quarter Inside Back Cover
<PAGE 13>
<TABLE>
Table of Selected Financial Data
Dillard's, Inc. And Subsidiaries
(In thousands of dollars, except per share data)
1997 1996 1995* 1994 1993
<S> <C> <C> <C> <C> <C>
Net Sales $6,631,752 $6,227,585 $5,918,038 $5,545,803 $5,130,648
Percent Increase 6% 5% 7% 8% 9%
Cost of Sales 4,393,291 4,124,765 3,893,786 3,614,628 3,306,757
Percent of Sales 66.2% 66.2% 65.8% 65.2% 64.4%
Interest and Debt Expense 129,237 120,599 120,054 124,282 130,915
Income Before Taxes 410,035 378,761 269,653 (a) 406,110 399,534
Income Taxes 151,710 140,140 102,470 154,320 158,400
Net Income 258,325 238,621 167,183 (a) 251,790 241,134
Per Common Share **
Diluted earnings per share 2.31 2.09 1.48 2.23 2.14
Dividends 0.14 0.14 0.12 0.10 0.08
Book Value 25.70 23.91 21.91 20.55 18.42
Average Number of Shares
Outstanding ** 111,993,814 113,988,633 113,143,842 113,013,998 112,808,262
Accounts Receivable - Total 1,186,491 1,154,673 1,123,103 1,117,411 1,111,744
Merchandise Inventories 1,784,765 1,556,958 1,486,045 1,362,756 1,299,944
Property and Equipment 2,501,492 2,191,933 2,035,538 1,984,145 1,921,470
Total Assets 5,591,847 5,059,726 4,778,535 4,577,757 4,430,274
Long-term Debt 1,365,716 1,173,018 1,157,864 1,178,503 1,238,293
Capitalized Lease Obligations 12,205 13,690 20,161 22,279 31,621
Deferred Income Taxes - Total 314,971 261,094 248,469 302,801 284,981
Stockholders' Equity 2,807,938 2,717,178 2,478,327 2,323,567 2,081,647
Number of Employees - Average 44,616 43,470 40,312 37,832 35,536
Gross Square Footage (in thousands) 43,300 40,000 37,300 35,300 34,900
Number of Stores
Opened 12 15 9 7 10
Acquired 11 0 0 0 0
Closed 3 3 0 5 1
Total - End of Year 270 250 238 229 227
<PAGE 14>
</TABLE>
<TABLE>
Table of Selected Financial Data
Dillard's, Inc. And Subsidiaries
(In thousands of dollars, except per share data)
1992 1991 1990 1989* 1988
<S> <C> <C> <C> <C> <C>
Net Sales $4,713,987 $4,036,392 $3,605,518 $3,049,062 $2,558,395
Percent Increase 17% 12% 18% 19% 16%
Cost of Sales 3,043,348 2,565,904 2,287,891 1,926,971 1,636,861
Percent of Sales 64.5% 63.6% 63.5% 63.2% 64.0%
Interest and Debt Expense 121,940 109,386 97,032 91,836 80,979
Income Before Taxes 375,330 322,157 280,778 227,892 172,529
Income Taxes 138,900 116,000 98,000 79,800 58,700
Net Income 236,430 206,157 182,778 148,092 113,829
Per Common Share **
Diluted earnings per share 2.11 1.84 1.67 1.45 1.18
Dividends 0.08 0.07 0.07 0.06 0.05
Book Value 16.28 14.19 12.31 10.23 7.80
Average Number of Shares
Outstanding ** 112,292,575 111,832,758 109,351,914 101,890,272 96,655,737
Accounts Receivable - Total 1,106,710 1,004,496 932,544 759,803 654,333
Merchandise Inventories 1,178,562 1,052,683 889,333 716,054 527,931
Property and Equipment 1,688,682 1,338,434 1,088,753 921,820 804,676
Total Assets 4,107,114 3,498,506 3,007,979 2,496,277 2,067,517
Long-term Debt 1,381,676 1,008,967 839,490 739,597 620,956
Capitalized Lease Obligations 32,381 29,489 31,284 32,900 25,157
Deferred Income Taxes - Total 178,311 143,463 115,854 108,426 128,565
Stockholders' Equity 1,832,018 1,583,475 1,364,885 1,094,721 752,178
Number of Employees - Average 33,883 32,132 31,786 26,304 23,114
Gross Square Footage (in thousands) 33,200 29,100 26,600 23,500 20,800
Number of Stores
Opened 11 10 4 3 7
Acquired 12 7 23 19 4
Closed 3 5 3 6 0
Total - End of Year 218 198 186 162 146
* 53 Weeks
** Restated 3 for 1 stock split
(a) Includes Impairment charges of $126.6 million before taxes ($78.5 million after tax).
</TABLE>
<PAGE 15>
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
Dillard's, Inc. and Subsidiaries
Sales
Total sales increases on a comparable 52-week basis were 6%, 7% and 5% for
1997,1996 and 1995, respectively. The comparable store sales increase was 2%
for all three years. Comparable store sales include sales for stores that were
in operation for a full period in both the current quarter and the
corresponding quarter for the prior year.
Management believes that 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.
The sales mix for the past three years by category as a percent of total sales
has been:
1997 1996 1995
Cosmetics 12.7% 12.9% 12.7%
Women's & Juniors' Clothing 30.6% 29.9% 30.0%
Children's Clothing 6.4% 6.5% 6.5%
Men's Clothing & Accessories 19.5% 19.5% 18.9%
Shoes, Accessories & Lingerie 20.2% 19.9% 19.5%
Home 10.2% 10.8% 11.7%
Leased Departments .4% .5% .7%
Total 100.0% 100.0% 100.0%
Cost of Sales
Cost of sales as a percentage of sales was 66.2%, 66.2% and 65.8% for 1997,
1996 and 1995, respectively.
Higher levels of markdowns necessitated by lower than expected sales caused the
increases in the cost of sales percentage for 1997 and 1996 over 1995.
Management cannot predict whether this trend will continue.
Expenses
Expenses as a percentage of sales for the past three years were as follows:
1997 1996 1995
Advertising, Selling, Administrative
& General Expenses 24.6% 24.7% 24.3%
Depreciation & Amortization 3.0% 3.1% 3.3%
Rentals .8% .9% 1.0%
Interest & Debt Expense 2.0% 2.0% 2.0%
<PAGE 16>
Advertising, selling, administrative and general expenses decreased as a
percentage of sales during 1997 primarily due to a reduction in bad debt
expense, offset by an increase in payroll expense. Payroll expense in the
selling area increased as a percentage of sales in both 1997 and 1996 as the
Company sought to invest more in its sales force. Additionally, bad debt
expense increased as a percentage of sales in 1996 as compared to 1995.
Management cannot predict whether the 1997 decline in bad debt expense as a
percentage of sales will continue. Depreciation and amortization decreased as a
percentage of sales during 1996. This was caused by the lower depreciation
expense in 1996 due to the write down of the carrying values of property and
equipment at certain stores in 1995. In connection with the 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" in
1995, the Company recorded an after-tax charge of approximately $78.5 million,
which represented the amount required to write down the carrying value of
property and equipment to its then estimated fair value. Rentals continued to
decrease slightly as a percentage of sales during 1997 and 1996, primarily due
to a higher proportion of the Company's properties being owned rather than
leased.
Liquidity & Capital Resources
Net cash flows from operations were $247 million for 1997. In addition to
cash flows from operations, the Company borrowed $300 million by issuing
unsecured notes in underwritten public offerings. The Company's commercial
paper increased $290 million during the year.
Capital expenditures were $509 million for 1997. During 1997, the Company
constructed 12 new stores, acquired seven stores in Virginia from Proffitt's,
Inc., acquired ten Florida department store buildings from Dayton Hudson
Corporation and acquired three Macy's stores in Houston. Five of these acquired
stores were added to existing locations and four were not opened prior to the
end of the year. The Company also expanded and remodeled four stores during the
year. During 1997, the Company repaid $183 million of its long-term debt and
capitalized lease obligations.
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. As of January 31, 1998, the Company has purchased 5,044,500
shares of Class A common stock at a cost of $165 million.
During 1997, the Company's merchandise inventories increased by $228 million.
This 14 1/2% increase was caused primarily by the store expansions discussed
above. On a comparable store basis, the merchandise inventories increased
6 1/2%. Trade accounts receivable increased by $28 million in 1997.
For 1998, the Company plans to construct eight stores (two of which will be
replacement stores), a distribution center and expand nine stores. Capital
expenditures are projected to be approximately $320 million for 1998.
Maturities of the Company's long-term debt over the next five years are $107
million, $108 million, $109 million, $60 million and $111 million,
respectively.
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 $750 million. The revolving line of credit requires that
consolidated stockholders' equity be maintained at $1 billion or more. No funds
were borrowed under the revolving line of credit or the line of credit
agreements during fiscal 1997. At the end of 1997, the Company had an
outstanding shelf registration for unsecured notes in the amount of $300
million.
<PAGE 17>
The Company expects to finance its capital expenditures, common stock
repurchase activity, and working capital requirements, including required debt
repayments from cash flows generated from operations and by issuing new debt.
Quantitative and Qualitative Disclosures
about Market Risk
The table below provides information about the Company's debt obligations that
are sensitive to changes in interest rates. The table presents maturities of
the Company's long-term debt and related weighted average interest rates by
expected maturity dates.
<TABLE>
Expected Maturity Date
1998 1999 2000 2001 2002 Thereafter Total Fair Value
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt
($000) $107,268 $108,005 $108,788 $59,636 $110,555 $978,732 $1,472,984 $1,617,870
Average Interest
Rate 8.5% 7.6% 9.3% 9.6% 7.5% 7.8% 8.0%
</TABLE>
Year 2000 Compliance
The Company has identified all significant applications that will require
modification to insure year 2000 compliance. Internal resources are being used
to make the required modifications and test year 2000 compliance. Management
does not expect that either costs of modifications or consequences of any
unsuccessful modifications should have a material adverse effect on the
financial position, results of operations or liquidity of the Company.
Recent Accounting Pronouncements
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" was issued and is effective for fiscal periods beginning
after December 15, 1997. SFAS No. 131 established standards for the reporting
of information about operating segments. The Company will adopt SFAS No. 131 in
1998 and is currently evaluating the disclosure requirements.
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 report, the Company's annual report on Form 10-K 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.
<PAGE 18>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Dillard's, Inc.
Little Rock, Arkansas
We have audited the accompanying consolidated balance sheets of Dillard's,
Inc. and subsidiaries as of January 31, 1998 and February 1, 1997, and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended January 31, 1998.
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's, Inc. and
subsidiaries as of January 31, 1998 and February 1, 1997, and the results of
their operations and their cash flows for each of the three years in the
period ended January 31, 1998 in conformity with generally accepted
accounting principles.
As discussed in Note 10 to the consolidated financial statements, during
fiscal 1995, the Company changed its method of accounting for the impairment
of long-lived assets and for long-lived assets to be disposed of to conform
with Statement of Financial Accounting Standards No. 121.
Deloitte & Touche LLP
New York, New York
February 23, 1998
<PAGE 19>
DILLARD'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Share Data)
ASSETS January 31, 1998 February 1, 1997
CURRENT ASSETS:
Cash and cash equivalents $ 41,833 $ 64,094
Trade accounts receivable (net of
allowance for doubtful accounts
of $27,809 and $24,169) 1,158,682 1,130,504
Merchandise inventories 1,784,765 1,556,958
Other current assets 12,777 9,080
Total current assets 2,998,057 2,760,636
PROPERTY AND EQUIPMENT
Land and land improvements 36,045 37,038
Buildings and leasehold improvements 1,799,072 1,576,058
Furniture, fixtures and equipment 2,125,688 1,839,970
Buildings under construction 37,691 55,024
Buildings under capital leases 25,148 25,148
Less accumulated depreciation and amortization (1,522,152) (1,341,305)
2,501,492 2,191,933
OTHER ASSETS 92,298 107,157
TOTAL ASSETS $ 5,591,847 $5,059,726
LIABILITIES AND STOCKHOLDERS' EQUITY January 31, 1998 February 1, 1997
CURRENT LIABILITIES:
Trade accounts payable and accrued expenses $ 530,034 $ 536,695
Commercial paper 419,136 128,738
Federal and state income taxes 40,761 46,220
Current portion of long-term debt 107,268 181,564
Current portion of capital lease obligations 1,651 1,529
Total current liabilities 1,098,850 894,746
LONG-TERM DEBT 1,365,716 1,173,018
CAPITAL LEASE OBLIGATIONS 12,205 13,690
DEFERRED INCOME TAXES 307,138 261,094
OPERATING LEASES AND COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock - 4,400 shares issued and
outstanding 440 440
Common stock, Class A - 110,251,634 and
109,594,496 shares issued; 105,207,134
and 109,594,496 shares outstanding 1,103 1,096
Common stock, Class B (convertible) -
4,016,929 shares issued and outstanding 40 40
Additional paid-in capital 657,137 641,388
Retained earnings 2,314,709 2,074,214
Less treasury stock, at cost, Class A -
5,044,500 shares (165,491) -
Total stockholders' equity 2,807,938 2,717,178
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,591,847 $ 5,059,726
See notes to consolidated financial statements.
<PAGE 20>
DILLARD'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Per Share Data)
Year Ended
January 31, 1998 February 1, 1997 February 3, 1996
NET SALES $ 6,631,752 $ 6,227,585 $ 5,918,038
SERVICE CHARGES, INTEREST
AND OTHER INCOME 185,157 184,475 179,100
6,816,909 6,412,060 6,097,138
COSTS AND EXPENSES:
Cost of sales 4,393,291 4,124,765 3,893,786
Advertising, selling,
administrative and general
expenses 1,629,721 1,538,450 1,436,446
Depreciation and amortization 199,939 193,719 191,805
Rentals 54,686 55,766 58,835
Interest and debt expense 129,237 120,599 120,054
Impairment charges - - 126,559
Total costs and expenses 6,406,874 6,033,299 5,827,485
INCOME BEFORE INCOME TAXES 410,035 378,761 269,653
INCOME TAXES 151,710 140,140 102,470
NET INCOME $ 258,325 $ 238,621 $ 167,183
BASIC EARNINGS PER COMMON SHARE $ 2.32 $ 2.10 $ 1.48
DILUTED EARNINGS PER COMMON SHARE $ 2.31 $ 2.09 $ 1.48
See notes to consolidated financial statements.
<PAGE 21>
<TABLE>
DILLARD'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in Thousands, Except Per Share Data)
Additional
Preferred Common Stock Paid-in Retained Treasury
Stock Class A Class B Capital Earnings Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 declared:
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 - 5 - 16,139 - - 16,144
Net income - - - - 238,621 - 238,621
Cash dividends declared:
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
Issuance of 657,138 shares
under stock option,
employee savings and
stock bonus plans - 7 - 15,749 - - 15,756
Purchase of treasury stock - - - - - (165,491) (165,491)
Net income - - - - 258,325 - 258,325
Cash dividends declared:
Preferred stock, $5 per share - - - - (22) - (22)
Common stock, $.16 per share - - - - (17,808) - (17,808)
BALANCE, JANUARY 31, 1998 $440 $ 1,103 $ 40 $ 657,137 $2,314,709 $(165,491) $2,807,938
See notes to consolidated financial statement
</TABLE>
<PAGE 22>
DILLARD'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
<TABLE>
Year Ended
January 31, 1998 February 1, 1997 February 3,
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 258,325 $ 238,621 $ 167,183
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 201,410 195,186 193,313
Deferred income taxes 53,877 12,625 (54,332)
Impairment charges - - 126,559
Changes in operating assets and liabilities:
Increase in trade accounts receivable (28,178) (26,929) (1,471)
Increase in merchandise inventories (227,807) (70,913) (123,289)
(Increase) decrease in other current assets (3,697) 1,083 (1,316)
Decrease (increase) in other assets 13,388 (23,852) (23,176)
(Decrease) increase in trade accounts payable
and accrued expenses and income taxes (19,853) (36,516) 15,653
Net cash provided by operating activities 247,465 289,305 299,124
INVESTING ACTIVITIES:
Purchase of property and equipment (509,498) (350,114) (347,202)
Net cash used in investing activities (509,498) (350,114) (347,202)
FINANCING ACTIVITIES:
Net increase in commercial paper 290,398 3,428 35,404
Proceeds from long-term borrowings 300,000 200,000 100,000
Principal payments on long-term debt and
capital lease obligations (182,961) (141,751) (64,155)
Dividends paid (17,930) (11,360) (16,988)
Common stock issued 15,756 16,144 1,164
Purchase of treasury stock (165,491) - -
Net cash provided by financing activities 239,772 66,461 55,425
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (22,261) 5,652 7,347
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 64,094 58,442 51,095
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 41,833 $ 64,094 $ 58,442
See notes to consolidated financial statements.
</TABLE>
<PAGE 23>
DILLARD'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1998, FEBRUARY 1, 1997 AND FEBRUARY 3, 1996
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Dillard's, 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 1997 ended on January 31, 1998
and included 52 weeks. Fiscal year 1996 ended on February 1, 1997 and
included 52 weeks. Fiscal year 1995 ended on February 3, 1996 and included
53 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.
Merchandise Inventories - The retail last-in, first-out ("LIFO") inventory
method is used to value merchandise inventories. At January 31, 1998 and
February 1, 1997, the LIFO cost of merchandise was approximately equal to
the first-in, first-out ("FIFO") cost of merchandise.
Property and Equipment - 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 $3.6 million, $4.4 million and $3.6 million in
fiscal 1997, 1996 and 1995, 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 sheets. 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 - 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.
Cash Equivalents - The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents.
<PAGE 24>
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.
Reclassification - Certain reclassifications have been made to prior year
financial statements to conform with fiscal 1997 presentation.
2. 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 5.50% to 5.88% at January 31, 1998.
At January 31, 1998 and February 1, 1997, the weighted average interest rate
for outstanding commercial paper was 5.57% and 5.37%, respectively. The
average amount of commercial paper outstanding during fiscal 1997 was $244
million, at a weighted average interest rate of 5.46%. The average amount
of commercial paper outstanding during fiscal 1996 was $134 million, at a
weighted average interest rate of 5.43%.
At January 31, 1998, the Company and DIC had revolving line of credit
agreements with various banks aggregating $750 million. The line of credit
agreements require that consolidated stockholders' equity be maintained at
$1 billion or more. These agreements expire on May 9, 2002. A commitment
fee of .075% 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 rate, alternative base rate or
Eurodollar rate. In addition, at January 31, 1998, 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 1995 through fiscal 1997
3. LONG-TERM DEBT
Long-term debt consists of the following (in thousands of dollars):
January 31, 1998 February 1, 1997
Unsecured notes at rates ranging from
6.625% to 9.50%, due 1998 through 2027 $ 1,300,000 $ 1,100,000
Unsecured 9.25% note of DIC
due 2001 100,000 175,000
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% 72,984 79,582
1,472,984 1,354,582
Current portion (107,268) (181,564)
$ 1,365,716 $ 1,173,018
Building, land, land improvements and equipment with a carrying value of
$97.4 million at January 31, 1998 are pledged as collateral on the mortgage
notes.
<PAGE 25>
Maturities of long-term debt over the next five years are $107.3 million,
$108.0 million, $108.8 million, $59.6 million and $110.6 million.
Interest and debt expense consists of the following (in thousands of dollars):
Fiscal 1997 Fiscal 1996 Fiscal 1995
Long-term debt:
Interest $ 118,466 $ 110,265 $107,572
Amortization of debt expense 1,471 1,422 1,400
119,937 111,687 108,972
Interest on capital lease obligations 1,626 1,813 2,241
Commercial paper interest 13,321 7,299 6,014
Other (5,647) (200) 2,827
$ 129,237 $ 120,599 $ 120,054
Interest paid during fiscal 1997, 1996 and 1995 was approximately
$135.7 million, $129.4 million and $121.4 million, respectively.
4. TRADE ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Trade accounts payable and accrued expenses consist of the following
(in thousands of dollars):
January 31, 1998 February 1, 1997
Trade accounts payable $ 317,774 $ 342,238
Accrued expenses:
Taxes, other than income 48,497 41,528
Salaries, wages, and employee benefits 57,894 51,569
Interest 36,523 34,969
Rent 11,245 13,105
Other 58,101 53,286
$ 530,034 $ 536,695
5. INCOME TAXES
The provision for Federal and state income taxes is summarized as follows
(in thousands of dollars):
Fiscal 1997 Fiscal 1996 Fiscal 1995
Current:
Federal $ 89,839 $ 117,230 $ 138,102
State 7,994 10,285 18,700
97,833 127,515 156,802
Deferred:
Federal 49,292 11,310 (47,832)
State 4,585 1,315 (6,500)
53,877 12,625 (54,332)
$ 151,710 $ 140,140 $ 102,470
<PAGE 26>
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 1997 Fiscal 1996 Fiscal 1995
Income tax at the statutory Federal rate $ 143,512 $ 132,377 $ 94,379
State income taxes, net of Federal benefit 8,176 7,584 7,970
Other 22 179 121
$ 151,710 $ 140,140 $ 102,470
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 January 31, 1998 and February 1, 1997 are as follows (in thousands of
dollars):
January 31, 1998 February 1, 1997
Property and equipment bases and
depreciation differences $ 264,526 $244,076
State income taxes 24,018 21,111
Differences between book and tax basis
of inventory 27,607 13,304
Other 2,789 3,016
Total deferred tax liabilities 318,940 281,507
Accruals not currently deductible (3,639) (18,715)
State income taxes (330) (1,698)
Total deferred tax assets (3,969) (20,413)
Net deferred tax liabilities $ 314,971 $261,094
Deferred tax assets and liabilities are presented as follows in the
accompanying consolidated balance sheets:
January 31, 1998 February 1, 1997
Current deferred tax liabilities $ 7,833 $ -
Non current deferred tax liabilities 307,138 261,094
Net deferred tax liabilities $ 314,971 $261,094
Income taxes paid during fiscal 1997, 1996 and 1995 were approximately
$100.0 million, $116.4 million and $158.0 million, respectively.
6. STOCKHOLDERS' EQUITY
Capital stock is comprised of the following:
Type Par Value Shares Authorized
Preferred (5% cumulative) $ 100 5,000
Additional preferred $ .01 10,000,000
Class A, common $ .01 289,000,000
Class B, common $ .01 11,000,000
<PAGE 27>
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.
7. EARNINGS PER SHARE
During the fouth quarter of fiscal 1997, the Company adopted the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share." In accordance with SFAS No. 128, basic earnings per
share has been computed based upon the weighted average of Class A and Class
B common shares outstanding, after deducting preferred dividend
requirements. Diluted earnings per share gives effect to outstanding stock
options
Earnings per common share have been computed as follows:
<TABLE>
(Dollar amounts and shares
in thousands; per share Fiscal 1997 Fiscal 1996 Fiscal 1995
amounts in dollars) Basic Diluted Basic Diluted Basic Diluted
<S> <C> <C> <C> <C> <C>
Net income $ 258,325 $ 258,325 $ 238,621 $ 238,621 $ 167,183 $ 167,183
Preferred stock dividends (22) (22) (22) (22) (22) (22)
Net earnings available for
per-share calculation $ 258,303 $ 258,303 $ 238,599 $ 238,599 $ 167,161 $ 167,161
Average shares common
stock outstanding 111,303 111,303 113,482 113,482 113,047 113,047
Stock options 691 507 97
Total average equivalent shares 111,303 111,994 113,482 113,989 113,047 113,144
Earnings per share $2.32 $2.31 $2.10 $2.09 $1.48 $1.48
</TABLE>
Options to purchase 2,618,406, 4,806,120 and 4,245,797 shares of Class A
common stock at prices ranging from $31.25 to $45.13 per share were
outstanding in 1997, 1996 and 1995, respectively, but were not included in
the computation of diluted earnings per share because the exercise price of
the options exceed the average market price and would have been anitdilutive.
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 1997, 1,600,925 shares were available for grant under
the plan and 8,150,265 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" 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 $245 million, $229 million and $164
million for 1997, 1996 and 1995 respectively. Diluted earnings per share
would have been $2.18, $2.01 and $1.45 for 1997, 1996 and 1995,
respectively. Basic earnings per share would have been $2.20, $2.02 and
$1.45 for 1997, 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.
<PAGE 28>
Stock option transactions are summarized as follows:
<TABLE>
Fiscal 1997 Fiscal 1996 Fiscal 1995
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Fixed Option Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year 7,058,685 $ 33.85 6,448,006 $ 33.08 4,537,521 $ 35.63
Granted 1,956,220 32.71 1,896,030 36.45 1,990,450 27.45
Exercised (1,815,180) 32.92 (848,366) 31.69 - -
Forfeited (650,385) 39.05 (436,985) 37.91 (79,965) 37.69
Outstanding, end of year 6,549,340 $ 33.25 7,058,685 $ 33.85 6,448,006 $ 33.08
Options exercisable
at year-end 3,245,640 $ 32.41 3,079,350 $ 35.57 3,946,866 $ 35.52
Weighted-average fair
value of options
granted during the year $7.78 $12.19 $9.26
</TABLE>
The following table summarizes information about stock options outstanding
at January 31, 1998:
<TABLE>
Options Outstanding Options Exercisable
Weighted-Average Weighted- Weighted-
Range of Options Remaining Average Options Average
Exercise Prices Outstanding Contractual Life(Yrs) Exercise Price Exercisable Exercise Price
<C> <C> <C> <C> <C> <C>
$27.25-$32.25 3,930,934 4.8 $30.10 2,419,634 $ 30.11
$37.00-$39.50 2,618,406 4.4 37.98 826,006 39.14
6,549,340 4.6 $33.25 3,245,640 $ 32.41
</TABLE>
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 1997, 1996, and 1995, respectively:
risk free interest rate 6.13%, 6.27% and 6.32%; expected life 2.9 years, 4.3
years and 4.3 years; expected volatility of 25.9%, 29.4% and 29.9%; dividend
yield .49%, .38% and .44%. 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. LEASES
Rental expense consists of the following (in thousands of dollars):
Fiscal 1997 Fiscal 1996 Fiscal 1995
Operating leases:
Buildings:
Minimum rentals $ 29,639 $ 28,842 $ 30,034
Contingent rentals 11,863 12,482 13,625
Equipment 11,661 13,100 14,015
53,163 54,424 57,674
Contingent rentals on capital leases 1,523 1,342 1,161
$ 54,686 $ 55,766 $ 58,835
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.
<PAGE 29>
The future minimum rental commitments as of January 31 1998 for all
noncancelable leases for buildings and equipment are as follows (in
thousands of dollars):
Fiscal Year Operating Leases Capital Leases
1998 $ 36,257 $ 2,987
1999 33,821 2,711
2000 29,967 2,627
2001 26,530 2,371
2002 25,647 2,371
After 2002 136,301 11,092
Total minimum lease payments $ 288,523 $ 24,159
Less amount representing interest (10,303)
Present value of net minimum lease payments
(of which $1,651 is currently payable) $ 13,856
Renewal options from three to twenty-five years exist on the majority of
leased properties. At January 31, 1998, the Company is committed to incur
costs of approximately $227 million to acquire, complete and furnish certain
stores.
10. IMPAIRMENT OF LONG-LIVED ASSETS
In the fourth quarter of fiscal 1995, 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 requires that long-lived assets and certain intangibles to be
held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable.
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. The Company believes that no material
impairment existed at January 31, 1998 and February 1, 1997.
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 trade accounts receivable is determined by discounting the
estimated future cash flows at current market rates, after consideration of
credit risks and servicing costs using historical rates. 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 cash and cash equivalents, trade accounts
receivable and commercial paper borrowings approximates their carrying
values at January 31, 1998 and February 1, 1997 due to the short-term
maturities of these instruments. The fair value of the Company's long-term
debt at January 31, 1998 and February 1, 1997 was $1,618 million and $1,435
million, respectively. The carrying value of the Company's long-term debt
at January 31, 1998 and February 1, 1997 was $1,473 million and $1,355
million, respectively.
<PAGE 30>
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of
operations for the years ended January 31, 1998 and February 1, 1997
(in thousands, except per share data):
Fiscal 1997
Three Months Ended
May 3 August 2 November 1 January 31
Net sales $ 1,515,344 $ 1,453,152 $ 1,592,118 $ 2,071,138
Gross profit 520,141 507,033 535,815 675,472
Net income 58,258 44,342 44,347 111,378
Basic earnings per share .52 .40 .40 1.01
Diluted earnings per share .52 .40 .40 1.00
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
Basic earnings per share .50 .35 .28 .98
Diluted earnings per share .50 .35 .28 .98
<PAGE 31>
Annual Meeting and General Information
Annual Meeting
Saturday, May 16, 1998, 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
ChaseMellon, 85 Challenger Road, Overpeck Centre, Ridgefield Park,
New Jersey 07660
Listing
New York Stock Exchange, Ticker Symbol "DDS"
<PAGE 32>
Stock Prices And Dividends By Quarter
Sales Prices - Common Shares
1997 1996 Dividends Per Share
Quarter High Low High Low 1997 1996
First $32.50 $28.00 $41.38 $29.75 $0.04 $0.03
Second 38.06 30.63 40.38 31.38 0.04 0.03
Third 44.75 34.00 34.88 30.88 0.04 0.04
Fourth 41.38 32.56 32.63 29.13 0.04 0.04
Inside Back Cover
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT.
STATE OF NAME UNDER WHICH
NAME INCORPORATION SUBSIDIARY IS DOING BUSINESS
Dillard Investment Co., Inc. Delaware Dillard Investment Company
Construction Developers,
Incorporated Arkansas Dillard's
The Higbee Company Delaware Dillard's
J. B. Ivey & Company North Carolina Dillard's
Dillard National Bank National Banking Dillard National Bank
Association
Dillard Travel, Inc. Arkansas Dillard Travel, Inc.
Pulaski Realty Company Arkansas Pulaski Realty Company
Dillard USA, Inc. Nevada Dillard's
Dillard's Utah, Inc. Utah Dillard's Utah, Inc.
Dillard International, Inc. Nevada Dillard International, Inc.
Dillard Distribution, Inc. Arkansas Dillard Distribution, Inc.
Dillard's Wyoming, Inc. Wyoming Dillard's
Dillard Ticketing Systems, Inc. Arizona Dillard Ticketing Systems, Inc.
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statement Number
33-42500 on Form S-8, in Registration Number 33-42553 on Form S-8, in
Registration Statement Number 33-42499 on Form S-8, and in Registration
Statement Number 333-26343 on Form S-3, of our reports (which express an
unqualified opinion and include an explanatory paragraph relating to a change
in accounting for the impairment of long-lived assets and for long-lived
assets to be disposed of) dated February 23, 1998, appearing in and
incorporated by reference in this Annual Report on Form 10-K of Dillard's,
Inc. and subsidiaries for the year ended January 31, 1998.
DELOITTE & TOUCHE LLP
New York, New York
April 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 41,833
<SECURITIES> 0
<RECEIVABLES> 1,158,682
<ALLOWANCES> 27,809
<INVENTORY> 1,784,765
<CURRENT-ASSETS> 2,998,057
<PP&E> 4,002,591
<DEPRECIATION> 1,501,099
<TOTAL-ASSETS> 5,591,847
<CURRENT-LIABILITIES> 1,098,850
<BONDS> 1,377,921
0
440
<COMMON> 1,143
<OTHER-SE> 2,806,355
<TOTAL-LIABILITY-AND-EQUITY> 5,591,847
<SALES> 6,631,752
<TOTAL-REVENUES> 6,816,909
<CGS> 4,393,291
<TOTAL-COSTS> 4,393,291
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 55,816
<INTEREST-EXPENSE> 129,237
<INCOME-PRETAX> 410,035
<INCOME-TAX> 151,710
<INCOME-CONTINUING> 258,325
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 258,325
<EPS-PRIMARY> 2.32<F1>
<EPS-DILUTED> 2.31<F2>
<FN>
<F1>BASIC PER SFAS NO. 128
<F2>DILUTED PER SFAS NO. 128
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS YEAR
<FISCAL-YEAR-END> JAN-31-1998 JAN-31-1998 JAN-31-1998 FEB-1-1997
<PERIOD-END> MAY-3-1997 AUG-2-1997 NOV-01-1997 FEB-1-1997
<CASH> 72,246 73,225 65,509 64,094
<SECURITIES> 0 0 0 0
<RECEIVABLES> 1,046,856 1,031,524 1,054,062 1,130,504
<ALLOWANCES> 25,277 26,751 25,923 24,169
<INVENTORY> 1,874,310 1,750,239 2,255,564 1,556,958
<CURRENT-ASSETS> 3,003,309 2,864,269 3,410,152 2,760,636
<PP&E> 3,675,899 3,811,712 3,912,754 3,513,155
<DEPRECIATION> 1,372,246 1,419,304 1,458,890 1,321,222
<TOTAL-ASSETS> 5,413,515 5,347,080 5,967,141 5,059,726
<CURRENT-LIABILITIES> 1,155,181 1,040,997 1,617,359 894,746
<BONDS> 1,284,739 1,332,721 1,330,747 1,186,708
0 0 0 0
440 440 440 440
<COMMON> 1,136 1,138 1,143 1,136
<OTHER-SE> 2,710,925 2,710,690 2,756,358 2,715,602
<TOTAL-LIABILITY-AND-EQUITY> 5,413,515 5,347,080 5,967,141 5,059,726
<SALES> 1,515,344 2,968,496 4,560,615 6,227,585
<TOTAL-REVENUES> 1,562,557 3,061,897 4,701,232 6,412,060
<CGS> 995,203 1,941,322 2,997,625 4,124,765
<TOTAL-COSTS> 995,203 1,941,322 2,997,625 4,124,765
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 14,989 28,057 40,462 66,629
<INTEREST-EXPENSE> 30,459 63,939 97,158 120,599
<INCOME-PRETAX> 92,473 162,860 233,247 378,761
<INCOME-TAX> 34,215 60,260 86,300 140,140
<INCOME-CONTINUING> 58,258 102,600 146,947 238,621
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 58,258 102,600 146,947 238,621
<EPS-PRIMARY> .52<F1> .92<F1> 1.32<F1> 2.10<F1>
<EPS-DILUTED> .52<F2> .91<F2> 1.31<F2> 2.09<F2>
<FN>
<F1>EPS-BASIC PER SFAS NO. 128
<F2>EPS-DILUTED PER SFAS NO. 128
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS YEAR
<FISCAL-YEAR-END> FEB-1-1997 FEB-1-1997 FEB-1-1997 FEB-3-1996
<PERIOD-END> MAY-4-1996 AUG-3-1996 NOV-2-1996 FEB-3-1996
<CASH> 70,696 68,768 65,217 58,442
<SECURITIES> 0 0 0 0
<RECEIVABLES> 1,038,569 1,008,554 1,028,652 1,103,575
<ALLOWANCES> 18,272 16,797 17,618 19,528
<INVENTORY> 1,750,318 1,618,252 2,046,085 1,486,045
<CURRENT-ASSETS> 2,865,820 2,708,989 3,162,936 2,658,225
<PP&E> 3,266,958 3,358,722 3,432,224 3,215,126
<DEPRECIATION> 1,208,290 1,250,028 1,283,333 1,179,588
<TOTAL-ASSETS> 5,012,291 4,906,586 5,413,956 4,778,535
<CURRENT-LIABILITIES> 1,117,826 804,604 1,340,024 869,680
<BONDS> 1,099,404 1,294,437 1,239,247 1,178,025
0 0 0 0
440 440 440 440
<COMMON> 1,135 1,136 1,136 1,131
<OTHER-SE> 2,540,983 2,579,280 2,606,420 2,476,756
<TOTAL-LIABILITY-AND-EQUITY> 5,012,291 4,906,586 5,413,956 4,778,535
<SALES> 1,453,302 2,793,628 4,290,206 5,918,038
<TOTAL-REVENUES> 1,501,753 2,888,582 4,431,849 6,097,138
<CGS> 955,797 1,827,601 2,832,724 3,893,786
<TOTAL-COSTS> 955,797 1,827,601 2,832,724 3,893,786
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 15,710 31,281 52,470 52,522
<INTEREST-EXPENSE> 28,585 58,809 89,117 120,054
<INCOME-PRETAX> 89,526 152,262 202,450 269,653
<INCOME-TAX> 33,125 56,335 74,905 102,470
<INCOME-CONTINUING> 56,401 95,927 127,545 167,183
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 56,401 95,927 127,545 167,183
<EPS-PRIMARY> .50<F1> .85<F1> 1.12<F1> 1.48<F1>
<EPS-DILUTED> .50<F2> .84<F2> 1.12<F2> 1.48<F2>
<FN>
<F1>EPS-BASIC PER SFAS NO. 128
<F2>EPS-DILUTED PER SFAS NO. 128
</FN>
</TABLE>
