UNITED STATES
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 July 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITES 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 office)
(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 time 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 July 31, 1999 111,391,068
CLASS B COMMON STOCK as of July 31, 1999 4,016,929
<PAGE>
Index
DILLARD'S, INC.
Page
Part I. Financial Information Number
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets as of July 31, 1999,
January 30, 1999 and August 1, 1998. 3
Consolidated Statements of Income and Retained Earnings
for the Three, Six and Twelve Month Periods Ended
July 31, 1999 and August 1, 1998. 4
Consolidated Statements of Cash Flows for the Six Months
Ended July 31, 1999 and August 1, 1998. 5
Notes to Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 8
Item 3. Quantitative and Qualitative Disclosure About Market
Risk. 13
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders. 13
Item 5. Other Information. 14
Item 6. Exhibits and Reports on Form 8-K. 14
Signatures 14
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1 Financial Statements
DILLARD'S, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in Thousands)
<TABLE>
July 31, January 30, August 1,
1999 1999 1998
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 138,546 $ 72,401 $ 65,019
Trade accounts receivable, net 987,986 1,192,572 1,027,344
Merchandise inventories 2,342,234 2,157,010 1,863,459
Other current assets 16,576 15,728 13,294
Total current assets 3,485,342 3,437,711 2,969,116
Property and Equipment, net 3,629,902 3,684,629 2,545,952
Goodwill, net 651,107 659,262 -
Other Assets 461,414 395,957 113,462
Total Assets $ 8,227,765 $ 8,177,559 $ 5,628,530
Liabilities and Stockholders' Equity
Current Liabilities:
Trade accounts payable and accrued expenses $ 996,422 $ 921,187 $ 696,486
Commercial paper 17,794 - 229,366
Federal and state income taxes 20,343 5,930 26,782
Current portion of long-term debt 7,289 164,289 157,268
Current portion of capital lease obligations 2,433 2,396 1,596
Total current liabilities 1,044,281 1,093,802 1,111,498
Long-term Debt 2,999,498 3,002,595 1,362,173
Capital Lease Obligations 25,860 27,000 11,532
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
Common stock 1,154 1,150 1,149
Additional paid-in capital 692,140 682,313 677,708
Retained earnings 2,527,366 2,432,793 2,417,176
Less treasury stock (275,174) (275,174) (275,174)
Total stockholder's equity 2,945,486 2,841,522 2,821,299
Total Liabilities and Stockholders' Equity $ 8,227,765 $ 8,177,559 $ 5,628,530
See notes to consolidated financial statements.
</TABLE>
<PAGE>
DILLARD'S, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
(Amounts in Thousands, except per share data)
<TABLE>
Three Months Ended Six Months Ended Twelve Months Ended
July 31, August 1, July 31, August 1, July 31, August 1,
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Net Sales $1,896,925 $1,504,504 $4,023,663 $3,186,720 $8,633,684 $6,849,976
Service Charges, Interest, and Other 61,333 47,496 126,201 95,165 246,019 186,921
1,958,258 1,552,000 4,149,864 3,281,885 8,879,703 7,036,897
Costs and Expenses:
Cost of sales 1,230,628 964,144 2,630,015 2,081,365 5,766,745 4,533,334
Advertising, selling, administrative
and general expenses 523,462 412,231 1,056,175 826,279 2,300,108 1,686,219
Depreciation and amortization 72,703 54,290 145,687 108,844 276,514 206,255
Rentals 15,673 9,892 31,503 20,183 79,302 53,402
Interest and debt expense 57,401 35,342 120,118 68,998 247,800 134,296
1,899,867 1,475,899 3,983,498 3,105,669 8,670,469 6,613,506
Income Before Income Taxes 58,391 76,101 166,366 176,216 209,234 423,391
Income taxes 22,185 28,155 63,215 65,200 81,840 156,650
Net Income 36,206 47,946 103,151 111,016 127,394 266,741
Retained Earnings At Beginning Of Period 2,495,461 2,373,513 2,432,793 2,314,709 2,417,176 2,167,838
2,531,667 2,421,459 2,535,944 2,425,725 2,544,570 2,434,579
Cash dividends declared (4,301) (4,283) (8,578) (8,549) (17,204) (17,403)
Retained Earnings At End Of Period $2,527,366 $2,417,176 $2,527,366 $2,417,176 $2,527,366 $2,417,176
Earnings per common share:
Basic $0.34 $0.45 $0.96 $1.03 $1.19 $2.44
Diluted $0.34 $0.45 $0.96 $1.03 $1.19 $2.43
Cash dividends declared per
common share $0.04 $0.04 $0.08 $0.08 $0.16 $0.16
See notes to consolidated financial statements.
</TABLE>
<PAGE>
DILLARD'S, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
<TABLE>
Six Months Ended
July 31, 1999 August 1, 1998
<S> <C> <C>
Operating Activities:
Net income $ 103,151 $ 111,016
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 146,124 110,030
Changes in operating assets and liabilities:
Decrease in trade accounts receivable, net 204,586 131,338
Increase in merchandise inventories and other current assets (186,072) (79,211)
Increase in other assets (67,333) (22,350)
Increase in trade accounts payable and accrued expenses
and income taxes 89,648 167,363
Net cash provided by operating activities 290,104 418,186
Investing Activities:
Purchases of property and equipment (81,366) (153,304)
Net cash used in investing activities (81,366) (153,304)
Financing Activities:
Net increase (decrease) in commercial paper 17,794 (189,770)
Principal payments on long-term debt and capital lease
obligations (161,200) (54,271)
Cash dividends paid (8,578) (8,549)
Proceeds from issuance of common stock 9,831 20,577
Retirement of preferred stock (440) -
Proceeds from long-term borrowings - 100,000
Purchase of treasury stock - (109,683) (109
Net cash used in financing activities (142,593) (241,696)
Increase in cash and cash equivalents 66,145 23,186
Cash and cash equivalents, beginning of year 72,401 41,833
Cash and cash equivalents, end of year $ 138,546 $ 65,019
See notes to consolidated financial statements.
</TABLE>
<PAGE>
DILLARD'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
July 31, 1999
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements of
Dillard's, Inc. (the "Company") 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, six and twelve month periods ended July 31, 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.
Note 2. Earnings Per Share Data
The following table sets forth the computation of basic and
diluted earnings per share ("EPS") for the periods indicated (in
thousands, except per share data).
<TABLE>
Three Months Ended Six Months Ended Twelve Months Ended
July 31, August 1, July 31, August 1, July 31, August 1
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Basic:
Net Income $36,206 $47,946 $103,151 $111,016 $127,394 $266,741
Preferred stock dividends (3) (6) (8) (11) (19) (22)
Net earnings available for
per-share calculations $36,203 $47,940 $103,143 $111,005 $127,375 $266,719
Average shares outstanding 107,186 106,727 107,055 107,525 106,947 109,110
Basic earnings per share $ .34 $ .45 $ .96 $ 1.03 $ 1.19 $ 2.44
Diluted:
Net income $36,206 $47,946 $103,151 $111,016 $127,394 $266,741
Preferred stock dividends (3) (6) (8) (11) (19) (22)
Net earnings available for
per-share calculations $36,203 $47,940 $103,143 $111,005 $127,375 $266,719
Average shares outstanding 107,186 106,727 107,055 107,525 106,947 109,110
Stock options 515 882 279 755 216 858
Total average
equivalent shares 107,701 107,609 107,334 108,280 107,163 109,968
Diluted earnings per share $ .34 $ .45 $ .96 $ 1.03 $ 1.19 $ 2.43
</TABLE>
Options to purchase 3,490,861 and 1,695,225 shares of Class A
common stock at prices ranging from $34.38 to $44.38 per share
were outstanding at July 31, 1999 and August 1, 1998,
respectively, but were not included in the computation of diluted
earnings per share because they would be antidilutive.
<PAGE>
Note 3. Acquisition
The Company acquired the 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 either
sold or exchanged certain of the stores obtained in the
Mercantile Acquisition to other retailers. 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 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 (amounts in thousands,
except per share data):
Three Months Six Months Twelve Months
Ended Ended Ended
August 1, August 1, August 1,
1998 1998 1998
Net sales $1,971,895 $4,111,989 $8,970,301
Net income 43,527 98,482 287,736
income
Basic EPS 0.41 0.92 2.64
Diluted eps 0.41 0.91 2.62
The pro-forma amounts reflect the results of operations of the
Company, the acquired business and the following adjustments: (i)
elimination of sales, cost of goods sold and operating expenses
related to the stores subsequently sold, (ii) depreciation on
property and equipment and amortization of intangible assets
based on the purchase price allocation, (iii) interest expense on
debt incurred in connection with the Mercantile Acquisition, and
(iv) 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 the results of operations,
expressed as a percentage of net sales, for the periods
indicated:
<TABLE>
Three Months Ended Six Months Ended Twelve Months Ended
July 31, August 1, July 31, August 1, July 31, August 1,
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 64.9 64.1 65.4 65.3 66.8 66.2
Gross profit 35.1 35.9 34.6 34.7 33.2 33.8
Advertising, selling,administative
and general expenses 27.6 27.4 26.2 25.9 26.6 24.6
Depreciation and amortization 3.8 3.6 3.6 3.4 3.2 3.0
Rentals 0.8 0.7 0.8 0.7 0.9 0.8
Interest and debt expense 3.0 2.3 3.0 2.2 2.9 1.9
Total operating expenses 35.2 34.0 33.6 32.2 33.6 30.3
Service charges,
interest and other 3.2 3.2 3.1 3.0 2.8 2.7
Income before income taxes 3.1 5.1 4.1 5.5 2.4 6.2
Income taxes 1.2 1.9 1.5 2.0 0.9 2.3
Net income 1.9 % 3.2 % 2.6 % 3.5 % 1.5 % 3.9 %
</TABLE>
Net Sales
Net sales increased 26.1%, 26.3% and 26.0% for the three, six and
twelve month periods ended July 31, 1999, respectively, compared
to the three, six and twelve months periods ended August 1, 1998.
These increases were primarily due to (i) increases in comparable
store sales of 4%, 4% and 1% for the respective three, six and
twelve month periods ended July 31, 1999 compared to the same
periods in 1998 (ii) incremental revenue generated by the stores
acquired in the Mercantile Acquisition (the "Acquired Stores")
and (iii) incremental revenue generated from traditional new
store openings. While comparable store sales for the Company
increased 4% during the three months ended July 31, 1999, the
Acquired Stores operated at approximately 19% below their
previous year's sales levels. Although the Company anticipated a
decline in sales at the Acquired Stores, management expected a
more rapid improvement in sales activity during 1999.
Accordingly, the Company funded inventory and sales personnel
commitments beyond the level supported by actual sales. As a
result of the lower than planned sales levels, the relationship
of cost of sales to sales and advertising, selling,
administrative and general expenses to sales was negatively
impacted (see below).
The Mercantile Acquisition, as well as traditional store openings
and closings increased the number of stores in the Dillard's
system by 23.5% to 336 stores at July 31, 1999 compared to 272
stores at August 1, 1998.
Cost of Sales
Cost of sales, as a percent of net sales, increased to 64.9% for
the quarter ended July 31, 1999 from 64.1% for the quarter ended
August 1, 1998. The increase in cost of sales was primarily due
to specific factors inherent in the integration of the Acquired
Stores into the Company's merchandising operations. The increase
in cost of sales as a percentage of net sales was primarily due
to lower than planned sales levels at the Acquired Stores,
discussed above, as well as other factors inherent in the
integration of the Acquired Stores into the Company's
merchandising operations These factors include significant
markdowns on spring season merchandise, discontinuation of
merchandise subject to outstanding commitments with branded
vendors and elimination of certain private label clothing lines,
with resultant markdowns required to liquidate of these lines.
These factors primarily impacted the Acquired Stores and resulted
in the gross margin at the Acquired Stores being approximately
$25 million lower than if these stores had realized the same
gross margin as Dillard's core stores. Management expects cost
of sales as a percent of net sales to continue at higher than
historical levels through the third quarter of 1999 and to
decrease to historical levels in the fourth quarter of 1999.
<PAGE>
Cost of sales, as a percentage of net sales, for the six months
ended July 31, 1999 and August 1, 1998 was 65.4% and 65.3%,
respectively. Cost of sales for the twelve months ended July 31,
1999 and August 1, 1998 was 66.8% and 66.2%, respectively.
During the twelve month period ended July 31, 1999, the Company
recorded an inventory valuation adjustment of $86.8 million
resulting from the initial alignment of Acquired Store
inventories to reflect the Company's merchandising philosophy.
In addition to the factors mentioned above, cost of sales for the
twelve months ended July 31, 1999 included a charge of $39
million for inventory valuation adjustments resulting from the
alignment of Acquired Store inventories to reflect the Company's
merchandising and pricing philosophy and was additionally
impacted in the fourth quarter of 1998 by markdowns resulting
from distribution and merchandise processing delays during the
consolidation of distribution systems of the Acquired Stores into
the Dillard's distribution system. The distribution and
merchandise processing delays resulted in later than planned
store receipts and subsequent higher levels of markdowns in the
post-holiday selling season.
Advertising, Selling, Administrative and General Expenses
The Company's historical relationship trends between advertising,
selling, administrative and general ("SG&A") expenses and net
sales were negatively impacted by business integration and
consolidation issues involving the Acquired Stores during the
twelve months ended July 31, 1999 when compared to the twelve
months ended August 1, 1998.
Primary efforts to integrate the Acquired Stores into the
Dillard's system occurred in the third and fourth quarters of
1998 and involved the Company recording integration related
expenses of approximately $91 million. These charges increased
SG&A expenses as a percentage of net sales to 26.6% for the
twelve month period ended July 31, 1999 compared to 24.6% for the
twelve month period ended August 1, 1998. The process of
integrating the Acquired Stores involved the consolidation of
various administrative support functions such as marketing,
buying, advertising, accounting and data processing, as well as
the alignment of store operating and distribution methodologies.
The alignment process continued during the first and second
quarters of 1999. However, this and process is substantially
complete at this time. and the Consequently, the relationship
between advertising, selling, administrative and general expenses
and net sales is returning to more traditional levels.
SG&A expenses as a percentage of net sales increased to 27.6% for
the quarter ended July 31, 1999 from 27.4% for the quarter ended
August 1, 1998. The increase is primarily attributable to higher
levels of SG&A expenses in the Acquired Stores as compared to
Dillard's core stores. Store level SG&A expenses were 27.2% of
net sales in the Acquired Stores as compared to store level
SG&A expenses of 23.9% of net sales for Dillard's core stores.
This was caused by the factors discussed in the Net Sales
section (see above).
The comparable relationship between advertising, selling,
administrative and general expenses and net sales for the six
months ended July 31, 1999 and August 1, 1998, respectively, was
26.2% and 25.9%, with the increase due to the factors discussed
above.
Depreciation and Amortization Expense
Depreciation and amortization expense, as a percent of net sales,
increased for the three, six and twelve month periods ended July
31, 1999 compared to similar periods in 1998, due primarily to
the amortization of goodwill. Goodwill is being amortized over a
40 year period, with quarterly amortization expense approximating
$4.1 million.
Rentals
Rental expense, as a percent of net sales, for the three, six and
twelve month periods ended July 31, 1999 was .8% .8% and .9%,
respectively, compared to .7%, .7% and .8%, respectively, for the
three, six and twelve month periods ended August 1, 1998. The
increase in rental expense is the result of higher levels of
leased properties obtained as a result of the Mercantile
Acquisition.
<PAGE>
Interest and Debt Expense
Interest and debt expense, as a percent of net sales, reflects a
general increase between the three, six and twelve month periods
of 1999 compared to similar periods in 1998. The increase in
interest and debt expense is directly related to the increased
level of unsecured debt incurred in connection with the
Mercantile Acquisition.
Service Charges, Interest and Other Income
Service charges, interest and other income, as a percent of net
sales, have remained generally constant between the three, six
and twelve month periods of 1999 and 1998, indicating that the
Company's credit operations are growing at approximately the same
rate as the growth in total net sales.
Income Taxes
The effective federal and state income tax rates for the three,
six and twelve month periods ended July 31, 1999 were 38%, 38%
and 39%, respectively, compared to 37% for each of the three, six
and twelve month periods ended August 1, 1998. The increase in
the effective tax rate is the result of the nondeductible nature
of goodwill amortization.
Financial Condition
Cash provided by operating activities totaled $290.1 million and
$418.2 million for the six months ended July 31, 1999 and August
1, 1998, respectively. The reduction in cash provided by
operating activities is due primarily to an increase in the
number of stores operated by the Company, which resulted in a
25.7% increase in merchandise inventories. At July 31, 1999, the
Company operated 64 stores more than it operated at August 1,
1998. The inventory increase, on a comparable store basis,
during this period was 4%. The increase in inventories coupled
with the significant markdowns discussed in the cost of sales
section resulted in a decrease in the amount of cash provided by
operating activities during 1999.
The Company invested $81.4 million in capital expenditures for
the six months ended July 31, 1999 compared to $153.3 million for
the six months ended August 1, 1998. Consistent with its
corporate plan, the Company has reduced its level of capital
spending, with current year emphasis placed on integrating the
Mercantile Stores.
During the six months ended July 31, 1999, the Company opened two
stores: the Citrus Park Mall store in Tampa, Florida and the
MacArthur Center store in Norfolk, Virginia. The Winter Park,
Florida clearance store was closed in the second quarter of 1999
and the Main Street Store in Baton Rouge, Louisiana is scheduled
to be closed in the third quarter of 1999.
The Company anticipates opening three stores in the third quarter
of 1999; the Mall of Georgia store in Atlanta, Georgia; the Arbor
Place store in Douglasville, Georgia; and the Sierra Vista Towne
Center store in Sierra Vista, Arizona. Anticipated store
openings in the fourth quarter of 1999, in time for the holiday
shopping season, should occur as follows: the Park Mall store in
Tucson, Arizona (replacement store); the Boynton Beach store in
Boynton Beach, Florida; the Pemberton Square store in Vicksburg,
Mississippi and the Antelope Valley Mall store in Palmdale,
California.
Cash used in financing activities totaled $142.6 million and
$241.7 million for the six months ended July 31, 1999 and August
1, 1998, respectively. The reduction in cash used in financing
activities during 1999 is due primarily to the discontinuation of
Class A common stock repurchases. During the six months ended
August 1, 1998, the Company repurchased 3 million Class A common
shares for $109.7 million. The Company was authorized to
repurchase up to $300 million of Class A common stock. The
Company substantially completed this repurchase program by
repurchasing $275 million of Class A Common Stock prior to
August 1, 1998. This repurchase program was discontinued at the
time of the Mercantile Acquisition.
<PAGE>
Year 2000 Readiness Disclosure
The Company has actively addressed the issues related to the date
change in the 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 could
fail to perform date calculations correctly and would, therefore,
produce erroneous results. This would temporarily prevent the
Company from processing business transactions.
Based on assessments of its computerized systems, the Company
determined that is was necessary to modify or replace portions of
it software and certain hardware so that applicable computerized
systems would properly utilize dates beyond December 31, 1999.
The Company presently believes that with modifications or
replacements of existing software and certain hardware, its Year
2000 issue can be mitigated. However, if such modifications and
replacements are not made, or are not completed timely, the Year
2000 issue could have a material impact on the operations of the
Company.
The Company's plan to resolve the Year 2000 issue involves the
following four phases: assessment, remediation, testing and
implementation. In addition, the Company has gathered information
about the Year 2000 compliance status of its significant vendors
and monitors such status on a periodic basis.
State of Readiness
The Company began initial efforts to address the Year 2000 issue
in 1996. Currently, the computer systems, including both
information technology systems ("IT") and non-information
technology systems ("non-IT"), have been assessed and work is in
the final stages of remediation, testing and implementation of
appropriate modifications or replacements for systems which were
evaluated as not being Year 2000 compliant.
Year 2000 remediation, testing and implementation for
approximately 90% of the IT systems has been completed at this
time. The remediation of the remaining IT systems is expected to
be complete no later than October 1999. Additionally, the
Company has obtained letters of certification from its mission-
critical computer system hardware and software vendors indicating
that such systems are Year 2000 compliant.
Non-IT systems are primarily systems with embedded processors
such as elevators, telephone systems and security systems. At
the present time, the non-IT systems have been substantially
remediated, tested and applicable corrections implemented.
Cost
The Company has utilized both internal and external resources to
reprogram, replace, test and implement hardware and software
changes for Year 2000 modifications. The Company believes the
external cost to remediate all computerized systems will not
exceed $1.5 million. To date the Company has incurred
approximately, $1.4 million ($0.7 million expensed and $0.7
million capitalized for new systems and equipment), related to
all phases of the Year 2000 project. Additionally, the Company
has incurred and will continue to incur internal costs. These
internal costs relate principally to payroll costs of the
information systems group and other costs related to the normal
operation of the Company's data centers. All internal costs are
expensed as incurred. The costs associated with Year 2000 issues
will be funded from the Company's existing sources of liquidity.
The Company has not deferred any significant information
technology projects as a result of its Year 2000 compliance
efforts.
Third Parties
There are significant third party risks associated with 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. Although the
Company believes its 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 the significant risks involved in the Year 2000 issue, the
Company's management is closely monitoring the progress of Year
2000 compliance efforts. Additionally, the Audit Committee of
the Board of Directors is periodically updated concerning the
status of the Year 2000 project.
<PAGE>
Contingency Plan
Business resumption contingency plans have been completed for
bank related mission-critical systems. These plans address how
the Company will continue to do business until any mission-
critical system failure has been corrected. These plans are
periodically reviewed to determine if changing business
conditions necessitate a change in the contingency plan.
Summary
Management of the Company believes it has an effective program in
place to resolve the Year 2000 issue. As noted above, the
Company has not yet completed all necessary phases of its Year
2000 program. In addition, as is the case for most companies
involved in Year 2000 system modifications, disruptions in the
general economy resulting from Year 2000 issues could also
materially adversely affect the Company's ability to market and
sell its products. The Company could also be subject to
litigation for computer system failure, equipment shutdown at its
stores or failure to properly date business records. The amount
of potential liability and lost revenue cannot be reasonably
estimated at this time.
The preceding Year 2000 discussion contains "forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements including without
limitation, anticipated costs and the dates by which the Company
expects to complete certain actions, are based on management's
best current estimates, which were derived utilizing numerous
assumptions about future events, including the continued
availability of certain resources, representations received from
third parties, and other factors. However, there can be no
guarantee that these estimates will be achieved, and actual
results could differ materially from those anticipated. Specific
factors that might cause such material differences include, but
are not limited to, the ability to identify and remediate all
relevant information technology and non-information technology
systems, results of Year 2000 testing, adequate resolution of
Year 2000 issues by businesses and other third parties who are
service providers, suppliers or customers of the Company,
unanticipated system costs, the adequacy of and ability to
implement contingency plans as well as other uncertainties. The
"forward-looking statements" made in the foregoing Year 2000
discussion speak only as of the date on which such statements are
made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances
after the date on which such statement is made or to reflect the
occurrence of unanticipated events.
Forward-Looking Information
Statements in the Management's Discussion and Analysis of
Financial Condition and Results of Operations include certain
"forward-looking statements", including (without limitation)
statements with respect to anticipated future operating and
financial performance, growth and acquisition opportunities and
other similar forecasts and statements of expectation. Words
such as "expects," "anticipates," "intends," "plans," "believes,"
"seeks," "estimates," and "should" and variations of these words
and similar expressions, are intended to identify these forward-
looking statements. The Company cautions that 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 are based on estimates,
projections, beliefs and assumptions of management at the time of
such statements and are not guarantees of future performance.
The Company disclaims any obligation to update or revise any
forward-looking statements based on the occurrence of future
events, the receipt of new information, or otherwise. Forward-
looking statements of the Company involve risks and uncertainties
and are subject to change based on various important factors.
Actual future performance, outcomes and results may differ
materially from those expressed in forward-looking statements
made by the Company and its management as a result of a number of
risks, uncertainties and assumptions, including those relating to
Year 2000 considerations. Representative examples of those
factors (without limitation) include general industry and
economic conditions; economic and weather conditions for regions
in which the Company's stores are located and the effect of these
factors on the buying patterns of the Company's customers;
changes in consumer spending patterns and debt levels; trends in
personal bankruptcies; the impact of competitive market factors
and other economic and demographic changes of similar or
dissimilar nature; the Company's success, or lack thereof, to
remediate, test and implement necessary hardware and software
modifications to become Year 2000 compliant; changes in operating
expenses, including employee wages, commissions structures and
related benefits; the continued availability of financing in
amounts and at the terms necessary to support the Company's
future business; assumed cost savings and other synergistic
benefits of the Mercantile Acquisition and the success achieved
or problems encountered in the continued integration of
Mercantiles' operations.
<PAGE>
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
During the six months ended July 31, 1999, the Company paid-off
repaid a $100 million unsecured 7.375% note and a $57 million
unsecured 6.70% note in addition to remitting scheduled principal
payments of $3.1 million on mortgage notes.
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the stockholders of the Company was held on
May 15, 1999. The matters submitted to a vote of the
stockholders were as follows: election of directors and a
proposal by certain stockholders concerning child/convict labor.
Votes
Votes For Votes Against Abstained
Election of Directors
Class A Nominees
Robert C. Connor 78,636,158 1,788,343 0
Will D. Davis 78,232,780 2,191,722 0
John Paul Hammerschmidt 78,613,650 1,810,852 0
William B. Harrison, Jr. 78,636,381 1,788,121 0
John H. Johnson 78,621,150 1,803,352 0
Class B Nominees
William Dillard 4,008,760 0 0
Calvin N. Clyde, Jr. 4,008,760 0 0
Drue Corbusier 4,008,760 0 0
Alex Dillard 4,008,760 0 0
William Dillard, II 4,008,760 0 0
Mike Dillard 4,008,760 0 0
James I. Freeman 4,008,760 0 0
E. Ray Kemp 4,008,760 0 0
Jackson T. Stephens 4,008,760 0 0
William H. Sutton 4,008,760 0 0
Other Proposals
Child/Convict Labor 2,941,754 62,352,901 4,148,059
<PAGE>
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 Act as follows:
Six Months Ended Fiscal Year Ended
July 31, August 1, January 30, January 31, February 1, February 3, January 28,
1999 1998 1999 1998 1997 1996* 1995
2.24 3.25 1.97 3.69 3.61 2.86 3.72
* 53 week year.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit (12): Statement re: Computation of Earnings to Fixed Charges
(b) Reports of Form 8-K filed during the second quarter: None
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: September 14, 1999 /s/James I. Freeman
James I. Freeman
Senior Vice President & Chief
Financial Officer
(Principal Financial & Accounting Officer)
<PAGE>
Exhibit Index
Exhibit Number Exhibit
12 Computation of Ratio of Earnings to
Fixed Charges
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
<TABLE>
Six Months Ended Fiscal Year Ended
July 31 August 1 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 $166,366 $176,216 $219,084 $410,035 $378,761 $269,653 $406,110
Fixed charges (less capitalized
interest) 130,619 75,726 219,341 147,466 139,188 139,666 145,921
EARNINGS $296,985 $251,942 $438,425 $557,501 $517,949 $409,319 $552,031
Interest $120,118 $68,998 $196,680 $129,237 $120,599 $120,054 $124,282
Capitalized interest 1,900 1,876 3,050 3,644 4,420 3,567 2,545
Interest factor in rent expense 10,501 6,728 22,661 18,229 18,589 19,612 21,639
FIXED CHARGES $132,519 $77,602 $222,391 $151,110 $143,608 $143,233 $148,466
Ratio of earnings to fixed charges 2.24 3.25 1.97 3.69 3.61 2.86 3.72
* 53 Weeks
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> JUL-31-1999
<CASH> 138,546
<SECURITIES> 0
<RECEIVABLES> 987,986
<ALLOWANCES> 33,255
<INVENTORY> 2,342,234
<CURRENT-ASSETS> 3,485,342
<PP&E> 5,444,444
<DEPRECIATION> 1,814,542
<TOTAL-ASSETS> 8,227,765
<CURRENT-LIABILITIES> 1,044,281
<BONDS> 3,025,358
0
0
<COMMON> 1,154
<OTHER-SE> 2,944,332
<TOTAL-LIABILITY-AND-EQUITY> 8,227,765
<SALES> 4,023,663
<TOTAL-REVENUES> 4,149,864
<CGS> 2,630,015
<TOTAL-COSTS> 2,630,015
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 33,383
<INTEREST-EXPENSE> 120,118
<INCOME-PRETAX> 166,366
<INCOME-TAX> 63,215
<INCOME-CONTINUING> 103,151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103,151
<EPS-BASIC> .96
<EPS-DILUTED> .96
</TABLE>
