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 October 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 (IRS Employer
jurisdiction of incorporation Identification Number)
or organization)
1600 CANTRELL ROAD, LITTLE ROCK, ARKANSAS 72201
(Address of principal executive offices)
(Zip Code)
(501) 376-5200
(Registrant's telephone number, including area code)
Indicate by checkmark whether the Registrant
(1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days. Yes x No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
CLASS A COMMON STOCK as of October 31, 1998 102,802,724
CLASS B COMMON STOCK as of October 31, 1998 4,016,929
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
<TABLE>
CONSOLIDATED BALANCE SHEETS
DILLARD'S, INC.
(Unaudited)
(Thousands) October 31 January 31 November 1
1998 1998 1997
ASSETS
CURRENT ASSETS
<C> <C> <C>
Cash and cash equivalents $56,010 $41,833 $65,509
Trade accounts receivable 1,411,185 1,158,682 1,054,062
Merchandise inventories 2,608,041 1,784,765 2,255,564
Other current assets 55,326 12,777 35,017
TOTAL CURRENT ASSETS 4,130,562 2,998,057 3,410,152
INVESTMENTS AND OTHER ASSETS 418,343 92,298 103,125
PROPERTY AND EQUIPMENT, NET 3,683,958 2,463,801 2,433,072
CONSTRUCTION IN PROGRESS 47,597 37,691 20,792
GOODWILL 648,966 -
$8,929,426 $5,591,847 $5,967,141
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses $1,315,473 $530,034 $1,002,641
Commercial paper 158,132 419,136 463,209
Short-term borrowings 865,001 -
Federal and state income taxes 126,248 40,761 43,325
Current portion of long-term debt 176,268 107,268 106,564
Current portion of capital lease obligations 2,409 1,651 1,620
TOTAL CURRENT LIABILITIES 2,643,531 1,098,850 1,617,359
LONG-TERM DEBT 2,648,838 1,365,716 1,318,159
CAPITAL LEASE OBLIGATIONS 27,582 12,205 12,588
DEFERRED INCOME TAXES 642,706 307,138 261,094
TOTAL LIABILITIES 5,962,657 2,783,909 3,209,200
COMPANY-OBLIGATED MANDATORILY
REDEEMABLE PREFERRED SECURITIES
OF SUBSIDIARY GRANTOR TRUSTS 200,000 -
STOCKHOLDERS' EQUITY
Preferred stock 440 440 440
Common stock 1,149 1,143 1,143
Additional paid-in capital 677,655 657,137 649,758
Retained earnings 2,362,699 2,314,709 2,207,735
Less treasury stock (275,174) (165,491) (101,135)
2,766,769 2,807,938 2,757,941
$8,929,426 $5,591,847 $5,967,141
See notes to consolidated financial statements.
</TABLE>
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
DILLARD'S, INC.
(Unaudited)
(Thousands, except per share data)
<TABLE>
Three Months Ended Nine Months Ended Twelve Months Ended
October 31 November 1 October 31 November 1 October 31 November 1
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Net sales $2,021,299 $1,592,118 $5,208,019 $4,560,615 $7,279,156 $6,497,994
Service charges, interest, and other 63,125 47,217 158,290 140,617 202,830 183,449
2,084,424 1,639,335 5,366,309 4,701,232 7,481,986 6,681,443
Cost and expenses:
Cost of sales 1,368,266 1,056,303 3,449,631 2,997,625 4,845,297 4,289,666
Advertising, selling, administrative
and general expenses 642,880 415,031 1,469,159 1,184,812 1,914,068 1,601,386
Depreciation and amortization 68,486 53,901 177,330 156,429 220,840 197,032
Rentals 17,616 10,494 37,799 31,961 60,524 55,161
Interest and debt expense 64,871 33,219 133,869 97,158 165,948 128,640
2,162,119 1,568,948 5,267,788 4,467,985 7,206,677 6,271,885
INCOME (LOSS) BEFORE INCOME TAXES (77,695) 70,387 98,521 233,247 275,309 409,558
Income taxes (benefit) (27,490) 26,040 37,710 86,300 103,120 151,535
NET INCOME (LOSS) (50,205) 44,347 60,811 146,947 172,189 258,023
Retained earnings at beginning
of period 2,417,176 2,167,838 2,314,709 2,074,214 2,207,735 1,967,692
2,366,971 2,212,185 2,375,520 2,221,161 2,379,924 2,225,715
Cash dividends declared (4,272) (4,450) (12,821) (13,426) (17,225) (17,980)
RETAINED EARNINGS AT END
OF PERIOD $2,362,699 $2,207,735 $2,362,699 $2,207,735 $2,362,699 $2,207,735
BASIC INCOME (LOSS) PER SHARE ($0.47) $0.40 $0.57 $1.32 $1.59 $2.30
DILUTED INCOME (LOSS) PER SHARE ($0.47) $0.40 $0.56 $1.31 $1.58 $2.29
Cash dividends declared per common share $0.04 $0.04 $0.12 $0.12 $0.16 $0.16
See notes to consolidated financial statements.
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
DILLARD'S, INC.
(Unaudited)
(Thousands)
<TABLE>
Nine Months Ended
October 31 November 1
1998 1997
<S> <C>
OPERATING ACTIVITITES
Net income $60,811 $146,947
Adjustments to reconcile net income to net cash
provided by operating activities, net of effects of acquisition:
Depreciation and amortization 178,765 157,552
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 191,490 76,442
Increase in merchandise inventories and
other current assets (401,480) (724,543)
(Increase) decrease in investments and other assets (8,931) 2,909
Increase in trade accounts payable and
accrued expenses and income taxes 529,889 463,639
NET CASH PROVIDED BY OPERATING ACTIVITIES 550,544 122,946
INVESTING ACTIVITIES
Purchase of property and equipment (237,147) (418,360)
Acquisition, net of cash acquired and assets held for sale (2,175,442)
NET CASH USED IN INVESTING ACTIVITIES (2,412,589) (418,360)
FINANCING ACTIVITIES
Net (decrease) increase in commercial paper (261,004) 334,471
Net proceeds from short-term borrowings 865,001
Proceeds from long-term borrowings 1,250,000 200,000
Proceeds from company-obligated mandatorily redeemable
preferred securities of subsidiary grantor trusts 200,000
Principal payments on long-term debt and
capital lease obligations (75,625) (130,870)
Dividends paid (12,991) (14,014)
Proceeds from sale of common stock 20,524 8,377
Purchase of treasury stock (109,683) (101,135)
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,876,222 296,829
INCREASE IN CASH AND CASH EQUIVALENTS 14,177 1,415
Cash and cash equivalents at beginning of period 41,833 64,094
CASH AND CASH EQUIVALENTS AT END OF PERIOD $56,010 $65,509
See notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-
Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the nine month period ended October
31, 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. During the thirteen weeks ended October 31, 1998, the Company
completed its acquisition (the "Acquisition") of Mercantile Stores
Company, Inc. ("Mercantile") pursuant to an Agreement and Plan of
Merger dated May 16, 1998. Mercantile is a conventional department
store retailer engaged in the general merchandising business,
operating 119 department or home fashion stores under 13 different
names in a total of 17 states.
The Acquisition was accounted for under the purchase method and,
accordingly, the results of operations have been included in the
Company's results of operations since August 13, 1998, and the
purchase price has been allocated to Mercantile's assets and
liabilities based on their estimated fair values as of that date.
Based upon management's initial estimates, the excess of cost over net
assets acquired is approximately $652 million.
Subsequent to the Acquisition, the Company entered into two separate
agreements whereby the Company sold in the aggregate 26 of the
acquired stores to Proffitt's, Inc. and the May Department Stores
Company. In addition, the Company entered into an agreement with
Belk, Inc. to exchange seven of the acquired stores for nine Belk,
Inc. stores with a fair market value of approximately $70 million.
The results of operations of the sold or exchanged stores are included
in the accompanying statements of operations from the date of
acquisition to the date of sale or exchange.
The following table sets forth the purchase price and preliminary
purchase price allocation (certain fair values were based upon
preliminary estimates and will be adjusted once final amounts are
determined):
(in millions)
Cash paid for stock $ 2,940
Cash paid for outstanding stock options 3
Transaction expenses, including investment banking,
legal and accounting 29
Transaction liabilities, primarily contractually obligated
severance payments 20
Purchase price 2,992
Historical book value of assets acquired 1,653
Excess of purchase price over historical book value
of assets acquired $ 1,339
============
Allocation of excess purchase price:
Assets held for sale $ 306
Elimination of LIFO inventory reserve 28
Increase property and equipment to fair value 444
Increase pension assets to fair value 86
Increase Investments and other assets to fair value 125
Other adjustments (30)
Goodwill 652
Changes in deferred income taxes for the tax effect
of above adjustments (except goodwill) (272)
$ 1,339
===========
Goodwill is being amortized over 40 years on a straight line basis.
The Company will assess the recoverability of costs in excess of net
assets acquired annually based on existing facts and circumstances and
projected earnings before interest, depreciation and amortization on
an undiscounted basis. Should the Company's assessment indicate an
impairment of this asset in the future, an appropriated write-down
will be recorded.
The following unaudited pro forma condensed statements of operations
give effect to the Acquisition and related financing transactions as
if such transactions had occurred at the beginning of the periods
presented (in millions, except per share data):
39 Weeks Ended
October 31, 1998 November 1, 1997
Net sales $6,057 $5,998
Net income (loss) (9) 58
Basic income (loss) per share (.08) .52
Diluted income (loss) per share (.08) .51
The pro forma amounts reflect the results of operations of the
Company, the acquired business and the following adjustments:
Elimination of sales, cost of goods sold and operating expenses
related to the stores subsequently sold.
Depreciation on property and equipment and amortization of intangible
assets based on the estimated purchase price allocation.
Interest expense on the debt incurred in connection with the
Acquisition.
Adjustment of income tax expense related to the above.
The foregoing unaudited pro forma information is provided for
illustrative purposes only and does not purport to be indicative of
results that actually would have been achieved had the Acquisition
been consummated on the first day of the periods presented or of
future results.
3. The Company financed the Acquisition through the issuance of long-term
notes, commercial paper and short-term borrowings. The Company's borrowing
arrangements as of October 31, 1998 are as follows (in thousands):
Short-term debt:
Commercial paper $ 158,132
Receivables financing 865,001
Total short-term debt $ 1,023,133
===========
Long-term debt:
Unsecured notes at rates ranging from
6.125% to 9.50% due 1999 through 2027 $ 2,000,000
Unsecured 9.25% note of DIC due 2001 100,000
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
6.25% to 13.25% 68,106
Coupon reset notes at rates ranging from
6.08% to 6.39% due 2010 through 2013 500,000
Unsecured Mercantile notes assumed at rates
ranging from 6.70% to 8.20% due
2002 through 2022 157,000
Total long-term debt $ 2,825,106
===========
Capital Securities:
Company-obligated mandatorily redeemable preferred
securities of subsidiary grantor trusts $ 200,000
===========
Receivables financing - On August 14, 1998, a wholly-owned subsidiary
of the Company entered into a liquidity facility with Park Avenue
Receivables Corporation providing for a maximum borrowing of $1,350
million. Borrowings under the facility are secured by the credit card
receivables of the Company, which are owned by its wholly-owned
subsidiary.
Capital Securities - The Capital Securities represent beneficial
ownership interests in the assets of Dillard's Capital Trust I (the
"Trust"), a wholly owned subsidiary of the Company. The Trust exists
for the sole purpose of issuing the Capital Securities and investing
the proceeds in 7.5% Subordinated Deferrable Interest Debentures (the
"Subordinated Debentures") issued by the Company. The Subordinated
Debentures will mature on August 1, 2038. Holders of the Capital
Securities are entitled to receive cumulative cash distributions
payable quarterly at the annual rate of 7.5% of the liquidation amount
of $25 per Capital Security. The Capital Securities are subject to
mandatory redemption upon repayment of the Subordinated Debentures.
4. On February 21, 1997, the Board of Directors authorized the
implementation of a Class A common stock repurchase program of up to
$300 million. For the quarter ended October 31, 1998, no additional
shares were purchased.
5. Income Per Share
The following table sets forth the computation of basic and diluted
income (loss) per share.
<TABLE>
(thousands, except per share data) Three Months Ended Nine Months Ended
October 31 November 1 October 31 November 1
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Basic:
Net Income (Loss) $ (50,205) $ 44,347 $ 60,811 $146,947
Average shares outstanding 106,820 110,869 107,290 111,564
Income (loss) per shares - basic ($.47) $.40 $.57 $1.32
Diluted:
Net Income (Los s) $(50,205) $ 44,347 $ 60,811 $146,947
Preferred stock dividends (6) (6) (17) (17)
Net income (loss) available for
per-share calculations (50,211) 44,341 $60,794 $146,930
Average shares outstanding 106,820 110,869 107,290 111,564
Stock options - 1,246 567 696
Total average equivalent shares 106,820 112,115 107,857 112,260
Income (loss) per share - diluted ($.47) $ .40 $.56 $ 1.31
</TABLE>
Twelve Months Ended
October 31 November 1
1998 1997
Basic:
Net Income $172,189 $258,023
Average shares outstanding 108,098 112,067
Income per share - basic $1.59 $2.30
Diluted:
Net Income $172,189 $ 258,023
Preferred stock dividends (22) (22)
Net income available for
per-share calculations 172,167 258,001
Average shares outstanding 108,098 112,067
Stock options 594 577
Total average equivalent shares 108,692 112,644
Income per share - diluted $1.58 $ 2.29
Options to purchase 4,845,690 and 76,740 shares of Class A common
stock at prices ranging from $32.25 to $45.13 per share were
outstanding at October 31, 1998 and November 1, 1997, respectively,
but were not included in the computation of diluted income per share
because they would have been antidilutive.
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:
<TABLE>
Three Months Ended Nine Months Ended Twelve Months Ended
October 31 November 1 October 31 November 1 October 31 November 1
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 67.7 66.3 66.2 65.7 66.6 66.0
Gross profit 32.3 33.7 33.8 34.3 33.4 34.0
Advertising, selling, administrative
and general expenses 31.8 26.1 28.2 26.0 26.3 24.6
Depreciation and amortization 3.4 3.4 3.4 3.4 3.0 3.0
Rentals 0.9 0.7 0.7 0.7 0.8 0.9
Interest and debt expense 3.2 2.1 2.6 2.2 2.3 2.0
Total operating expenses 39.3 32.3 34.9 32.3 32.4 30.5
Other income 3.1 3.0 3.0 3.1 2.8 2.8
Income (loss) before income taxes (benefit) (3.9) 4.4 1.9 5.1 3.8 6.3
Income taxes (benefit) (1.4) 1.6 0.7 1.9 1.4 2.3
Net income (loss) (2.5) 2.8 1.2 3.2 2.4 4.0
</TABLE>
During the thirteen weeks ended October 31, 1998, the Company
completed its acquisition (the "Acquisition") of Mercantile Stores
Company, Inc. ("Mercantile") pursuant to an Agreement and Plan of
Merger dated May 16, 1998. Mercantile is a conventional department
store retailer engaged in the general merchandising business,
operating 119 department or home fashion stores under 13 different
names in a total of 17 states.
The Acquisition was accounted for under the purchase method and,
accordingly, the results of operations have been included in the
Company's results of operations since August 13, 1998, and the
purchase price has been allocated to Mercantile's assets and
liabilities based on their estimated fair values as of that date.
Based upon management's initial estimates, the excess of cost over net
assets acquired is approximately $652 million.
Subsequent to the Acquisition, the Company entered into two separate
agreements whereby the Company sold in the aggregate 26 of the
acquired stores to Proffitt's, Inc. and the May Department Stores
Company. In addition, The Company entered into an agreement with
Belk, Inc. to exchange seven of the acquired stores for nine Belk,
Inc. stores. The results of operations of the sold or exchanged
stores are included in the accompanying statements of operations from
the date of acquisition to the date of sale or exchange.
Net sales for the third quarter of 1998 were $2,021.3 million as
compared to $1,592.1 million for the third quarter of 1997. This is
an increase of 27%. The increase was primarily due to the additional
number of retail stores operated by the Company (resulting from new
store growth and the Acquisition), partially offset by a decline in
comparable store sales of 1%. At October 31, 1998, the Company
operated 343 stores, as compared to 268 stores at November 1, 1998.
For the nine months ended October 31, 1998 the total sales increase
14% compared to the first nine months of 1997. The comparable stores
increase for the nine months was 2%. For the twelve months ended
October 31, 1998 the total sales increase was 12% compared to 1997.
The comparable stores increase for this period was 2%. 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 for the three, nine and twelve months ended October 31,
1998 included a charge of $39 million for inventory valuation
adjustments resulting from the alignment of Mercantile inventories to
reflect the Company's merchandising and pricing philosophy. Before
this charge, cost of sales decreased to 65.8% of net sales for the
third quarter of 1998 compared to 66.3% for the third quarter of 1997.
Prior to the charge, cost of sales decreased to 65.4% of net sales for
the nine months ended October 31, 1998 from 65.7% for the first nine
months of 1997. Prior to the charge, cost of sales was constant at
66.0% of net sales for the twelve months ended October 31, 1998 and
November 1, 1997
Included in selling, general and administrative expenses ("SG&A") for
the three, nine and twelve months ended October 31, 1998 were certain
business integration and consolidation expenses ("BICE") associated
with the integration of Mercantile into the Company. BICE included
$43 million of severance costs, $26 million of lease rejection costs
for facilities closed subsequent to the Acquisition and $22 million of
costs associated with operating Mercantile central office functions
for a transitional period. Before such Acquisition related charges,
SG&A expenses as a percentage of nets sales increase from 26.1% to
27.2% for the third quarter of 1998, from 26.0% to 26.5% for the first
nine months of 1998, and from 24.6% to 25.0% for the twelve months
ended October 31, 1998. The increases were primarily due to increase
selling payroll expenses, as well as systems integration and other
consolidation and integration expenses associated with the
Acquisition. The Company is continuing the process of consolidating
various administrative support functions such as marketing, buying,
advertising, accounting and management information systems, as well as
aligning store operating and distribution methodologies. The Company
estimates that SG&A expenses for 1998 periods included addition
payroll and other systems integration expenses associated with the
Acquisition of approximately $20 million. The Company has taken steps
to reduce payroll and other overhead expenses, and expects to achieve
cost reductions as a result of a more efficient overhead expense
structure and increase purchasing power derived from the combination
of the two companies.
Depreciation and amortization expense remained constant as a
percentage of sales for the three, nine and twelve months ended
October 31,1998 compared to the three, nine and twelve months ended
November 1, 1997.
Rental expense increased from .7% of net sales for the third quarter
of 1997 to .9% for the third quarter of 1998. This increase reflects
the relatively higher percentage of leased property of Mercantile.
For the nine months ended October 31, 1998 and November 1, 1997,
rental expense was .7% of net sales. For the twelve months ended
October 31, 1998 and November 2, 1997, rental expense decreased from
.9% to .8% of net sales.
Interest and debt expense increased to 3.2% of net sales for the third
quarter of 1998 from 2.1% in the third quarter of 1997. For the nine
months ended October 31, 1998 interest and debt expense increased to
2.6% of net sales compared to 2.2% of net sales for the nine months
ended November 1, 1997. For the twelve months ended October 31, 1998
and November 1, 1997 interest and debt expense increased from 2.0% to
2.3% of net sales. The increase in interest and debt expense was due
to increased debt incurred to finance the Acquisition.
Service charges, interest and other income increased to 3.1% of net
sales for the third quarter of 1998 from 3.0% in the third quarter of
1997. For the nine months ended October 31, 1998 and November 1, 1997
service charges, interest and other income decreased from 3.1% to 3.0%
of net sales. For the twelve months ended October 31, 1998 and
November 1, 1997 the service charges, interest and other income was
constant at 2.8% of net sales.
The effective federal and state income tax rate was 37% for 1997. The
effective federal and state income tax rate was 38.2% and 37.5% for
the three and nine months ended October 31, 1998, respectively, giving
effect to the non-deductibility of the amortization of goodwill.
Financial Condition
As discussed above, the Company completed its acquisition of
Mercantile on August 13, 1998. Subsequent to the Acquisition, the
Company entered into an agreement to dispose of 26 of the acquired
stores. The Company funded the Acquisition by issuing $1.15 billion
of debt in underwritten public offerings. In addition, a subsidiary
of the Company issued $200 million in Capital Securities in an
underwritten public offering. Additionally, a wholly owned subsidiary
of the Company entered into a short term borrowing arrangement
providing for a maximum funding of $1.35 billion. At October 31,
1998, $865 million remained outstanding under this facility.
The Company invested $261 million in capital expenditures for the nine
months ended October 31, 1998 as compared to $334 million for the nine
months ended November 1, 1997. In the first nine months of 1998 the
Company opened seven new stores (one of which was a replacement store)
and expanded and remodeled two stores exclusive of the Mercantile
acquisition. The Company closed two stores during the first nine
months of 1998. 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 nine months of 1998, a total of 3.0 million
shares were purchased for a total of $109.7 million.
Merchandise inventories increased by 15% from $2.25 billion at
November 1, 1997 to $2.6 billion at October 31, 1998. This increase
reflects the Acquisition as well as other store openings. On a
comparable store basis, merchandise inventories decreased by 4%.
Increases in other balance sheet accounts between January 31, 1998 and
October 31, 1998 reflect Mercantile balances obtained in the
Acquisition and 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.
Subsequent to October 31, 1998, the Company issued debt in
underwritten public offerings. On November 4, 1998, the Company
issued $150 million of 5.79% Notes due November 15, 2001. On November
16, 1998, the Company issued $100 million of 6.625% Notes due November
15, 2008. On December 7, 1998, The Company issued $150 million 7%
notes due December 1, 2028. After these offerings, the Company has an
effective shelf registration for securities in the amount of $750
million.
Year 2000 Readiness Statement
The Company is actively addressing the issues related to the date
change in year 2000. This is necessary because many computer systems
were written using only two digits to contain the year in date fields.
On January 1, 2000 many of these programs will fail to perform date
calculations correctly and produce erroneous results. This could
temporarily prevent the Company from processing business transactions.
The Company began efforts as early as 1996 to address this issue.
Currently, all computer systems including both IT and non-IT systems
have been assessed and work is well under way to remediate the systems
that are not year 2000 compliant. The non-IT systems are primarily
systems with embedded processors such as telephone and security
systems. The non-IT systems have substantially been remediated.
Approximately 75% of the IT systems have been remediated or were
originally developed as year 2000 compliant. The remediation of the
remaining IT systems is expected to be complete no later than the
second quarter of 1999. The Company has obtained letters of
certification from its mission-critical computer systems and software
vendors.
The external cost (payments to equipment and service vendors) of
remediating non-compliant systems incurred thus far is approximately
$1.2 million. The Company believes the external cost to remediate all
systems will not exceed $2.5 million in total. Additionally, the
Company will incur internal costs in its remediation process. These
internal costs relate principally to the payroll costs of the
information systems group and other costs related to the normal
operation of the Company's data centers. The Company does not track
these costs separately. All costs associated with year 2000 issues
will be funded from the Company's existing sources of liquidity.
There are significant risks associated with the year 2000 issues.
Many of these risks such as those associated with electrical power
and/or telecommunications are outside the reasonable control of the
Company. Also, the failure of a significant number of the Company's
business partners could have a material impact on the Company's
operations. These risks are largely outside the control of the
Company. Although the Company believes its remediation and
contingency planning efforts adequately identify and address the year
2000 issues that are within the Company's reasonable control, there
can be no assurance that the Company's efforts will be fully
effective. Due to these significant risks the Company's management is
monitoring these efforts very closely. The Audit Committee of the
Board of Directors is periodically updated concerning the status of
the year 2000 efforts.
Business resumption contingency plans have been completed for the
mission-critical systems. These plans address how the Company will
continue to do business until the mission-critical system that failed
has been remediated. These plans will be periodically reviewed to
determine if changing business conditions necessitate a change in the
contingency plan.
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 nine months ended October 31, 1998, the Company issued a
total of $1,450 million of securities as outlined below
Amount Interest
Description (millions) Rate Maturity
Notes $ 100 6.30 % 2008
Notes 200 6.43 2004
Notes 100 6.69 2007
Debentures 200 7.13 2018
Reset Put Securities 100 6.08 2010
Reset Put Securities 100 6.17 2011
Reset Put Securities 150 6.31 2012
Reset Put Securities 150 6.39 2013
Notes 150 6.125 2003
Capital Securities of
Subsidiary 200 7.50 2038
Item 4. Submission of matters to a Vote of Security Holders
None
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
October 31 November 1 January 31 February 1 February 3 January 28 January 29
1998 1997 1998 1997 1996 * 1995 1994
1.64 3.08 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 third quarter:
The Company filed a report dated October 23, 1998, relating to
the issue of $150 million aggregate principal amount of 6.125%
Notes maturing on November 1,2003.
The Company filed a report dated October 29, 1998, relating to
the issue of $150 million aggregate principal amount of 5.790%
Notes maturing on November 15, 2001.
The Company filed a report dated November 10, 1998, relating to
the issue of $100 million aggregate principal amount of 6.625%
Notes maturing on November 15, 2008.
The Company filed a report dated December 1, 1998, relating to
the issue of $150 million aggregate principal amount of 7.0% Notes
maturing on December 1, 2028.
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: December 15, 1998 /s/ James I. Freeman
James I. Freeman
Senior Vice President & Chief Financial Officer
(Principal Financial & Accounting Officer)
EXHIBIT INDEX
Exhibits to Form 10-Q
Exhibit Number Exhibit
12 Statement re: Computation of Ratio of Earnings
to Fixed Charges
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
(Dollar amounts in thousands)
<TABLE>
Nine Months Ended Fiscal Year Ended
October 31 November 1 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 $98,521 $233,247 $410,035 $378,761 $269,653 $406,110 $399,534
Fixed charges (less capitalized
interest) 146,469 107,812 147,466 139,188 139,666 145,921 152,568
EARNINGS $244,990 $341,059 $557,501 $517,949 $409,319 $552,031 $552,102
Interest $133,869 $97,158 $129,237 $120,599 $120,054 $124,282 $130,915
Capitalized interest 2,631 3,012 3,644 4,420 3,567 2,545 1,882
Interest factor in rent expense 12,600 10,654 18,229 18,589 19,612 21,639 21,653
FIXED CHARGES $149,100 $110,824 $151,110 $143,608 $143,233 $148,466 $154,450
Ratio of earnings to fixed charg 1.64 3.08 3.69 3.61 2.86 3.72 3.57
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> OCT-31-1998
<CASH> 56,010
<SECURITIES> 0
<RECEIVABLES> 1,411,185
<ALLOWANCES> 42,316
<INVENTORY> 2,608,041
<CURRENT-ASSETS> 4,130,562
<PP&E> 5,392,434
<DEPRECIATION> 1,660,879
<TOTAL-ASSETS> 8,929,426
<CURRENT-LIABILITIES> 2,643,531
<BONDS> 2,676,420
0
440
<COMMON> 1,149
<OTHER-SE> 2,765,180
<TOTAL-LIABILITY-AND-EQUITY> 8,929,426
<SALES> 5,208,019
<TOTAL-REVENUES> 5,366,309
<CGS> 3,449,631
<TOTAL-COSTS> 3,449,631
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 44,259
<INTEREST-EXPENSE> 133,869
<INCOME-PRETAX> 98,521
<INCOME-TAX> 37,710
<INCOME-CONTINUING> 60,811
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,811
<EPS-PRIMARY> .57
<EPS-DILUTED> .56
</TABLE>
