SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 1, 1999
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 May 1, 1999 102,906,719
CLASS B COMMON STOCK as of May 1, 1999 4,016,929
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
CONSOLIDATED BALANCE SHEETS
DILLARD'S, INC.
(Unaudited)
(Thousands)
May 1 January 30 May 2
1999 1999 1998
ASSETS
Current Assets
Cash and cash equivalents $182,281 $72,401 $81,495
Trade accounts receivable 1,069,730 1,192,572 1,073,626
Merchandise inventories 2,564,669 2,157,010 2,063,898
Other current assets 16,085 15,728 13,176
Total current assets 3,832,765 3,437,711 3,232,195
Property and Equipment, net 3,631,273 3,684,629 2,503,466
Goodwill, net 655,185 659,262 -
Other Assets 437,264 395,957 100,414
$8,556,487 $8,177,559 $5,836,075
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable and
accrued expenses $1,260,179 $921,187 $810,635
Commercial paper - - 288,429
Federal and state income taxes 42,446 5,930 50,548
Current portion of long-term debt 107,289 164,289 107,268
Current portion of capital
lease obligations 2,332 2,396 1,624
Total current liabilities 1,412,246 1,093,802 1,258,504
Long - term Debt 3,000,893 3,002,595 1,463,968
Capital Lease Obligations 26,518 27,000 11,872
Deferred Income Taxes 681,061 681,061 322,028
Guaranteed Preferred Beneficial
Interests in the Company's
Subordinated Debentures 531,579 531,579 -
Stockholders' Equity
Preferred stock 440 440 440
Common stock 1,150 1,150 1,143
Additional paid-in capital 682,313 682,313 659,331
Retained earnings 2,495,461 2,432,793 2,373,513
Less treasury stock (275,174) (275,174) (254,724)
2,904,190 2,841,522 2,779,703
$8,556,487 $8,177,559 $5,836,075
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
DILLARD'S, INC.
(Unaudited)
(Thousands, except per share data)
<TABLE>
Three Months Ended Twelve Months Ended
May 1 May 2 May 1 May 2
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $2,126,738 $1,682,216 $8,241,263 $6,798,624
Service charges, interest and other 64,868 47,669 232,182 185,613
2,191,606 1,729,885 8,473,445 6,984,237
Cost and expenses:
Cost of sales 1,399,387 1,117,221 5,500,261 4,515,309
Advertising, selling,
administrative and general
expenses 532,713 414,048 2,188,877 1,661,179
Depreciation and amortization 72,984 54,554 258,101 203,291
Rentals 15,830 10,291 73,521 54,347
Interest and debt expense 62,717 33,656 225,741 132,434
2,083,631 1,629,770 8,246,501 6,566,560
INCOME BEFORE INCOME TAXES 107,975 100,115 226,944 417,677
Income taxes 41,030 37,045 87,810 154,540
NET INCOME 66,945 63,070 139,134 263,137
RETAINED EARNINGS AT BEGINNING
OF PERIOD 2,432,793 2,314,709 2,373,513 2,127,980
2,499,738 2,377,779 2,512,647 2,391,117
Cash dividends declared (4,277) (4,266) (17,186) (17,604)
RETAINED EARNINGS AT END OF PERIOD $2,495,461 $2,373,513 $2,495,461 $2,373,513
BASIC EARNINGS PER COMMON SHARE $0.63 $0.58 $1.30 $2.39
DILUTED EARNINGS PER COMMON SHARE $0.63 $0.58 $1.30 $2.37
Cash dividends declared per
common share $0.04 $0.04 $0.16 $0.16
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
DILLARD'S, INC.
(Unaudited)
(Thousands)
Three Months Ended
May 1 May 2
1999 1998
OPERATING ACTIVITITES
Net income $66,945 $63,070
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 73,807 55,149
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 122,842 85,056
Increase in merchandise inventories and
other current assets (408,016) (279,532)
Increase in other assets (42,129) (8,711)
Increase in trade accounts payable and accrued
expenses and income taxes 375,517 309,732
NET CASH PROVIDED BY OPERATING ACTIVITIES 188,966 224,764
INVESTING ACTIVITIES
Purchase of property and equipment (15,552) (56,528)
NET CASH USED IN INVESTING ACTIVITIES (15,552) (56,528)
FINANCING ACTIVITIES
Net decrease in commercial paper - (130,707)
Proceeds from long-term borrowings - 100,000
Principal payments on long-term debt and
capital lease obligations (59,248) (2,108)
Dividends paid (4,286) (8,720)
Common stock issued - 2,194
Purchase of treasury stock - (89,233)
NET CASH USED IN FINANCING ACTIVITIES (63,534) (128,574)
INCREASE IN CASH AND CASH EQUIVALENTS 109,880 39,662
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 72,401 41,833
CASH AND CASH EQUIVALENTS AT END OF PERIOD $182,281 $81,495
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended May 1,
1999 are not necessarily indicative of the results that may be
expected for the fiscal year ending January 29, 2000 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 30, 1999.
2. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share.
(thousands, except per share data)
Three Months Ended Twelve Months Ended
May 1 May 2 May 1 May 2
1999 1998 1999 1998
Basic:
Net Income $ 66,945 $ 63,070 $139,134 $263,137
Preferred stock dividends (6) (6) (22) (22)
Net earnings available for
per-share calculations 66,939 63,064 139,112 263,115
Average shares outstanding 106,924 108,323 106,832 110,185
Earnings per share - basic $.63 $.58 $1.30 $2.39
Diluted:
Net Income $ 66,945 $ 63,070 $139,134 $263,137
Preferred stock dividends (6) (6) (22) (22)
Net earnings available for
per-share calculations 66,939 63,064 $139,112 $263,115
Average shares outstanding 106,924 108,323 106,832 110,185
Stock options 44 628 308 797
Total average equivalent shares 106,968 108,951 107,140 110,982
Earnings per share - diluted $.63 $ .58 $1.30 $ 2.37
Options to purchase 7,149,391 and 2,599,406 shares of Class A common stock
at prices ranging from $27.25 to $40.22 per share were outstanding at
May 1, 1999 and May 2, 1998, respectively, but were not included in
the computation of diluted earnings per share because they would have been
antidilutive.
3. Acquisition
The Company acquired Mercantile Stores Company, Inc. ("Mercantile") on
August 13, 1998 ("Mercantile Acquisition"). The Mercantile
Acquisition was accounted for as a purchase and, accordingly, the
results of operations of Mercantile have been included in the
Company's results of operations from August 13, 1998. In connection
with the Mercantile Acquisition, the Company entered into two separate
agreements whereby the Company sold certain of the acquired stores.
In addition, the Company entered into an agreement to exchange certain
acquired stores for stores owned by another retailer. 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.
<PAGE>
The following unaudited pro forma condensed statements of operations
give effect to the Mercantile Acquisition and related financing
transactions as if such transactions had occurred at the beginning of
the periods presented:(in thousands, except per share data):
Three Months Ended Twelve Months Ended
May 2, 1998 May 1, 1999 May 2, 1998
Net Sales $2,140,094 $8,818,277 $8,927,524
Net Income 52,310 125,765 270,526
Basic income per share .48 1.18 2.45
Diluted income per share .48 1.17 2.44
The pro forma amounts reflect the results of operations of the
Company, the acquired business and the following adjustments: (1)
elimination of sales, cost of goods sold and operating expenses
related to the stores subsequently sold, (2) depreciation on property
and equipment and amortization of intangible assets based on the
estimated purchase price allocation, (3) interest expense on the debt
incurred in connection with the Mercantile Acquisition, and (4)
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 Mercantile
Acquisition been consummated on the first day of the periods presented
or of future results.
<PAGE>
ITEM 2 Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
Results of Operations
The following table sets forth operating results expressed as a percentage
of net sales for the periods indicated:
Three Months Ended Twelve Months Ended
May 1 May 2 May 1 May 2
1999 1998 1999 1998
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 65.8 66.4 66.7 66.4
Gross profit 34.2 33.6 33.3 33.6
Advertising, selling, administrative
and general expenses 25.0 24.6 26.6 24.4
Depreciation and amortization 3.4 3.3 3.1 3.0
Rentals 0.8 0.6 0.9 0.8
Interest and debt expense 3.0 2.0 2.7 2.0
Total operating expenses 32.2 30.5 33.3 30.2
Service charges, interest and other 3.1 2.8 2.8 2.7
Income before income taxes 5.1 5.9 2.8 6.1
Income taxes 2.0 2.2 1.1 2.2
Net income 3.1 3.7 1.7 3.9
<PAGE>
Net sales for the first quarter of 1999 were $2,126.7 million as
compared to $1,682.2 million for the first quarter of 1998. This is
an increase of 26%. The net sales in comparable stores increased 4%
for the period versus last year. The twelve month sales increase for
1999 over 1998 was 21%; for comparable stores the increase was 1%. 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 Company operated 65 more stores at May 1, 1999 versus May
2, 1998. The majority of the new stores relate to the Mercantile
Acquisition.
Cost of sales decreased from 66.4% of net sales for the first quarter
of 1998 to 65.8% for the first quarter of 1999. Part of this decrease
was caused by operation of the Company's hair and nail salons. These
salons were obtained in the Mercantile acquisition. The effect of the
salons was to decrease cost of sales by .2% of sales and increase
advertising, selling, administrative and general expenses by .2% of
sales. The balance of the improvement in the cost of sales resulted
from a lower level of markdowns in the first quarter of 1999 compared
to 1998. For the twelve months ended May 2, 1998 and May 1, 1999, the
cost of sales increased from 66.4% to 66.7% of net sales. This
increase was caused by inventory valuation adjustments in the last
half of 1998 resulting from the alignment of Mercantile inventories to
reflect the Company's merchandising and pricing philosophy. The
Company also experienced delays in the processing of merchandise in
the last half of 1998 brought about by the Mercantile acquisition.
These delays resulted in higher levels of markdowns in the post-
holiday selling season.
Advertising, selling, administrative and general expenses increased
from 24.6% of net sales for the first quarter of 1998 to 25.0% of net
sales for the first quarter of 1999. Part of this increase was caused
by the Company's hair and nail salons as discussed above. The balance
of the increase was caused by higher than normal expense levels in the
stores acquired from Mercantile as they make the transition to Dillard
operating philosophies. For the twelve months ended May 1, 1999 and
May 2, 1998 these expenses increased from 24.4% to 26.6% of net sales.
This increase was caused by certain business integration and
consolidation expenses recorded in the last half of 1998.
Depreciation and amortization expense increased slightly as a
percentage of sales for the three months ended May 1, 1999 compared to
the three months ended May 2, 1998 and increased slightly as a
percentage of sales from 1998 in the twelve month period ended May 1,
1999. This increase was primarily due to the amortization of goodwill
related to the Mercantile Acquisition.
Rental expense increased from .6% of net sales for the first quarter
of 1998 to .8% for the first quarter of 1999. For the twelve months
ended May 1, 1999 and May 2, 1998 the increase was from .8% to .9% of
net sales. This increase was due to the relatively higher percentage
of leased property of Mercantile.
Interest and debt expense increased from 2.0% of net sales for the
first quarter of 1998 to 3.0% for the first quarter of 1999. For the
twelve months ended May 1, 1999 and May 2, 1998 it increased from 2.0%
to 2.7% of net sales. The higher level of borrowing due to the
Mercantile Acquisition caused the increase in interest and debt
expense.
Service charges, interest and other income increased from 2.8% of net
sales for the first quarter of 1998 to 3.0% of net sales for the first
quarter of 1999. For the twelve months ended May 1, 1999 and
May 2, 1998 the increase was from 2.7% to 2.8% of net sales.
The effective federal and state income tax rate was 38% for the first
quarter of 1999, reflecting the nondeductibility of the goodwill
amortization. The effective rate was 37% for the first quarter of
1998.
<PAGE>
Financial Condition
Net cash flows from operations were $189 million for the first quarter
of 1999.
The Company invested $15.5 million in capital expenditures for the
three months ended May 1, 1999 as compared to $56.5 million for the
three months ended May 2, 1998. In the first quarter of 1999 the
Company opened two new stores. During 1999, the Company plans to
build eight additional stores (two of which will be replacement
stores). During 1998, the Company opened seven stores (two of which
were replacement stores), expanded and remodeled four stores, acquired
65 stores and closed five.
Merchandise inventories increased by 24% from $2.06 million at May 2,
1998 to $2.56 million at May 1, 1999. The Company operated 65 more
stores at May 1, 1999 versus May 2, 1998. This was the primary reason
for the increase in inventory. On a comparable store basis, the rate
of increase in merchandise inventories was 1.5%.
Fluctuations in certain other balance sheet accounts between January
30, 1999 and May 1, 1999 reflect normal seasonal variations within
the retail industry. The levels of merchandise inventories and
accounts receivable fluctuate due to the seasonal nature of the
retail business. Along with the fluctuations in these current assets,
there is also a corresponding fluctuation in trade accounts payable
and commercial paper.
Dillard's, Inc. 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 underway 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 85% 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 with the exception of four systems. These four
systems are expected to be complete by the end of August. 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
$1.4 million. The Company believes the external cost to remediate all
systems will not exceed $2.5 million in total. Additionally, the
Company has incurred and will continue to 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.
<PAGE>
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 1999 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 quarter the Company made scheduled debt obligation payments
of $57.0 million on the Company's unsecured 6.7% note and $1.7 million
on mortgage notes.
PART II OTHER INFORMATION
ITEM 5 Other Information
Ratio of Earnings to Fixed Charges
The Company has calculated the ratio of earnings to fixed charges pursuant
to Item 503 of Regulation S-K of the Securities and Exchange Commission as
follows:
Three Months Ended Fiscal Year Ended
May 1 May 2 January 30 January 31 February 1 February 3 January 28
1999 1998 1999 1998 1997 1996 * 1995
2.58 3.61 1.97 3.69 3.61 2.86 3.72
* 53 Weeks
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibit (12): Statement re: Computation of Ratio of Earnings to
Fixed Charges
(b) Reports on Form 8-K filed during the first quarter:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DILLARD'S, INC.
(Registrant)
DATE: June 15, 1999 /s/ James I. Freeman
James I. Freeman
Senior Vice President &
Chief Financial Officer
(Principal Financial & Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibits to Form 10-Q
Exhibit Number Exhibit
12 Statement re: Computation of Ratio of Earnings
to Fixed Charges
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
(UNAUDITED)
<TABLE>
Three Months Ended Fiscal Year Ended
May 1 May 2 January 30 January 31 February 1 February 3 January 28
1999 1998 1999 1998 1997 1996 * 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated pretax income $107,975 $100,115 $219,084 $410,035 $378,761 $269,653 $406,110
Fixed charges (less capitalized
interest) 67,994 37,086 219,341 147,466 139,188 139,666 145,921
EARNINGS $175,969 $137,201 $438,425 $557,501 $517,949 $409,319 $552,031
Interest $62,717 $33,656 $196,680 $129,237 $120,599 $120,054 $124,282
Capitalized interest 339 898 3,050 3,644 4,420 3,567 2,545
Interest factor in rent expense 5,277 3,430 22,661 18,229 18,589 19,612 21,639
FIXED CHARGES $68,333 $37,984 $222,391 $151,110 $143,608 $143,233 $148,466
Ratio of earnings to fixed charges 2.58 3.61 1.97 3.69 3.61 2.86 3.72
* 53 Weeks
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> MAY-1-1999
<CASH> 182,281
<SECURITIES> 0
<RECEIVABLES> 1,069,730
<ALLOWANCES> 36,103
<INVENTORY> 2,564,669
<CURRENT-ASSETS> 3,832,765
<PP&E> 5,386,112
<DEPRECIATION> 1,754,839
<TOTAL-ASSETS> 8,556,487
<CURRENT-LIABILITIES> 1,412,246
<BONDS> 3,027,411
0
440
<COMMON> 1,150
<OTHER-SE> 2,902,600
<TOTAL-LIABILITY-AND-EQUITY> 8,556,487
<SALES> 2,126,738
<TOTAL-REVENUES> 2,191,606
<CGS> 1,399,387
<TOTAL-COSTS> 1,399,387
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 17,046
<INTEREST-EXPENSE> 62,717
<INCOME-PRETAX> 107,975
<INCOME-TAX> 41,030
<INCOME-CONTINUING> 66,945
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,945
<EPS-BASIC> .63
<EPS-DILUTED> .63
</TABLE>
